"Housing Market Slumps"

chucknorris

ukcarper wrote: »

Did you actually change posters mind.

Did I? No, I wasn't involved (and anyway it was obviously a joke).

economic

GreatApe wrote: »

I dont know enough about china however it may have low children per women but it is still poor (low stock of capital) so risk free capital may still have a positive rate of return in china for now.

Housing is actually a good metric to look at because it is the biggest stock of capital in virtually every country in the world.

They have a huge need for additional capital to get to USA/EU type levels of development.
For example much of the EU has a rate of persons to homes of about 2.0-2.3.
If we take say 2.2 as a developed nation status then China 1.4 billion people will need about 630 million good quality homes

China does not have anything like that, it is why they are building at such a fast rate. I recall reading it was over 20 million units a year?? If that is the case they are building England, all of England, top to bottom, everything, each single year.

Many commentators look at this with awe or claim its a bubble however it is simply a poor country catching up fast.


China too will enter the zero rate world (I have no idea if they are already there, is their 'risk free' capital returning a positive yield over inflation? Also if it is state run banks setting prices it might not be an actual indicator)

It will certainly enter that world much sooner than India due to its fewer children per women

it is a different dynamic so harder to understand, for instance a peasant subsistence farmer family might as well be invisible to all the stats. However if they migrate to urban areas then they become visible and important to consider. So while births per women might be low, migration for poorer areas to richer areas act in many ways like 'births'

Japan was first to enter the zero rate world as they had fewer than 2 kids quite a long time ago plus not accepting any migrants meant they got there first. EU second especially with germany very low kids per woman rate. USA third. China probably 4th. India has some time to go maybe an additional 30 years after china. Africa last simply because they have the highest children per women now and for the foreseeable (but of course Africa is a lot of different nations with different trends)


Its not a difficult idea/theory. if women have just 1 child then a child inherits everything from 4 grand parents. If women have 6 children then a child gets 1/18th of each of their grandparents inheritance. In the low birthrate enviroment the young have a huge amount of capital and no one to rent the capital to (as all their peers also inherited huge sums). In the high birthrate environment the young have little to no capital gifted/inherited to them and their peers are in the same boat. The price of capital is high as all the young ones want to borrow capital as they havent enough themselves at that point in time

thanks its making a lot more sense now. essentially we in the western world are looking at negative or 0 real rates for the foreseeable future?

GreatApe

economic wrote: »

thanks its making a lot more sense now. essentially we in the western world are looking at negative or 0 real rates for the foreseeable future?

I think so, for so called 'risk free' assets which basically mean bank accounts and gov bonds, yes real rates of zero or negative.

Its not the only reason, there are others which point to the same thing.

Somewhat Interestingly I think the near AIs when it arrives should crash interest rates to zero or even highly negative. But then rates of return will be the least of our concerns when that arrives.

ukcarper

GreatApe wrote: »

why does the majority 50.1% need to get an inheritance for it to be a very important consideration?

It doesn't but it's much more than than that, 50% of people leave nothing.

economic

GreatApe wrote: »

I think so, for so called 'risk free' assets which basically mean bank accounts and gov bonds, yes real rates of zero or negative.

Its not the only reason, there are others which point to the same thing.

Somewhat Interestingly I think the near AIs when it arrives should crash interest rates to zero or even highly negative. But then rates of return will be the least of our concerns when that arrives.

the other factor pointing to the opposite i.e. higher real rates, is the dependency ratio. the baby boomer generation is the biggest generation upto the millenial generation. as the boomer generation generation retire, the millenials and general working population will have to support more and more of the retirees. with wage growth slow and less savings rate for the boomers, this puts pressure on the anount of capital available for the millenials and thus real rates would rise.

as you have mentioned there is also inhertances and gifts that would help the millenials out, but if the boomer generation live a long time they would also need this capital for care support. interesting times. i really think this will put pressure on technological advancements to accelerate. massive massive demand for this on the horizon.

obviously many offsetting factors involved and hard to determine overall impact.

GreatApe

economic wrote: »

the other factor pointing to the opposite i.e. higher real rates, is the dependency ratio. the baby boomer generation is the biggest generation upto the millenial generation. as the boomer generation generation retire, the millenials and general working population will have to support more and more of the retirees. with wage growth slow and less savings rate for the boomers, this puts pressure on the anount of capital available for the millenials and thus real rates would rise.

I would say look at japan rather than the uk as net migration has a big impact here and makes it harder to think things though

The dependency ratio in Japan is bad and is just going to get worse, i am not sure how or why that would allow real rates to be positive or to allow them to be more positive.

going back to housing, the biggest form of infrastructure and capital, housing in Japan can only go one way and that is down (Tokyo might escape for a time as its population decline wont be as bad). So housing the biggest stock of capital is not going to be positive and wont be positive if the dependency ratio gets worse.

Then the next biggest is possibly commercial and industrial buildings which is exactly the same as residential in this respect its going to go more negative if the dependency ratio gets worse. Long lasting infrastructure the same again.

You then have shares in companies, they will also do worse as the population shrinks, so again negative. (of course some companies will be positive some negative but overall profitability

lastly you have cash or cash equivalents (bonds). Well if everyone is running away from property infrastructure and shares that will drive bonds to zero or even negative values.

as you have mentioned there is also inhertances and gifts that would help the millenials out, but if the boomer generation live a long time they would also need this capital for care support

.

im not sure this will ever be a problem, people tend to die quite quickly once in care as most people do not go into care unless they absolutely need it and then they dont have that much time.

but even if we were going to get masses of old people going into care, that does not destroy their capital (houses, commercial buildings, infrastructure, shares, bonds) it merely moves around. The only capital that can expand and contract is cash and cash equivalents and that is something like 1/3rd of capital

GreatApe

ukcarper wrote: »

It doesn't but it's much more than than that, 50% of people leave nothing.

>£77 billion a year is a negligible economic consideration?

ukcarper

GreatApe wrote: »

>£77 billion a year is a negligible economic consideration?

No but you are assuming the majority goes on housing I don't think it does.

westernpromise

It seems clear that much of comes from housing and is passed on to offspring who are probably in the same area.

So while plenty of people in London get 6 figure inheritances and nobody does in Leeds, the former get them from housing and need them for housing while the latter don't.

ukcarper

westernpromise wrote: »

It seems clear that much of comes from housing and is passed on to offspring who are probably in the same area.

So while plenty of people in London get 6 figure inheritances and nobody does in Leeds, the former get them from housing and need them for housing while the latter don't.

But as the average age of benefiicary is 56 do they need it for housing.