The Fix? Apply Behavioural Therapy to get Owner-Occupiers to “manage the transition from “property ownership” mindset to “accommodation users” mindset.
A curious ‘philosophical’
article from the Irish Times 8 May 2021 by David McWilliams [I’ve omitted a
long para of waffle at the start]{The big news this week was that a ‘cuckoo
fund’ of financiers had bought-up an entire estate of 250 new built properties.
More on Cuckoo Funds at Give
me a crash course in... bulk buying of housing (irishtimes.com) }
Legacy
The balancing act poses big
questions.
What type of people do we want to be?
And what type of environment do we want to live in? Do we want to live in a
world where the concerns of the short term, the immediate balance sheet and the
quarterly profit margin dominate? Or should we be more concerned about the long
term and focus on the legacy we will leave, the quality of lives for the many
and the good we do?
It’s a choice between the impatient
world and the patient world.
This debate between patience and impatience is also playing out in Ireland in the housing market, even though many of the protagonists don’t realise it or don’t choose to frame it as such.
The housing crisis in Ireland is a multi-headed hydra involving finance, planning, cost of building, banking behaviour, building standards, demographics and, ultimately, a struggle between landowners and land users with builders in the middle, who regularly don’t appreciate that landowners are not their friends and often pick the wrong side.
The solutions to these various dilemmas, while
not easy, are technical and economic in nature. It can be fixed. [really? By
what means? And Why aren’t yiz doing it?]
At another level, there is a deeper, more philosophical debate waging. It centres on the core inconsistency embedded in what we might call the “promise of property”.
The inconsistency is the promise that property will make you wealthy once you own it and sell it on, allied with the promise that the first-time buyer can buy an affordable house. You can only have both of these aspirations for a number of generations because eventually, the society runs out of buyers.
We are here now. If we promise homeowners the option to sell on eventually, cashing in at much higher prices than they originally bought the property for, then we need to create a buying class with limitless income.
Societies that get lucky economically can probably
get away with this, in a fast-growing economy, for at most two generations,
then we run out of buyers rich enough to play the game.
Given how many have assumed the viability of this little intergeneration heist, it takes time for society to realise what is going on, so the last generation of first-time buyers will be suckered in with 30-year mortgages, equity-to-buy schemes, first-time buyer grants and the like.
These are signs of intergenerational
desperation, designed to keep the heist going because the political class can’t
see beyond the next election and is petrified to call time on the promise.
We end up shouting at each other about all class of avian funds – cuckoos, vultures, pigeons, whatever – rather than take a breath to see the reality that is unfolding.
We are at the end of a system of profoundly unproductive and highly fragile distortion of wealth. It is a giant, slow-moving housing Ponzi scheme, where exit at the top is dependent on suckers at the bottom. Once you are in the scheme you have a vested interest in keeping the show on the road, whether it is by voting for whoever will threaten it least. Before the system runs out of buyers rich enough, the banking system will lend erratically just to keep the scheme going, condemning another generation to debt.
This is all late-stage property heist
stuff. The system won’t crash like 2008, but slowly and painfully grind to a
halt, dominating local politics as it does.
Impatient
capitalists
However, there is a solution. It
comes down to the patient versus impatient dilemma. The reason funds such as
Reits are at the centre of the story is because they are impatient capitalists.
They are short-term investors, borrowing from richer funds and promising an
annual yield to investors. They are condemned by short-term thinking, even if
they don’t understand this and claim their investors are in for the long haul.
Once you have to come up with relentless quarterly profit you are a rodent on
the short-term treadmill.
Short-term thinking bullies long-term
thinking.
There is a solution to both the finance and philosophical dilemma, and it involves patient money, money that is borrowed at fixed rates for 100 years. This takes the neurosis out of the balance sheet and – critically – allows us to be good ancestors. These stable long-term loans are how the Dutch Republic financed dykes, for the common good, in the 17th century. Long-term bonds eliminate any capital shortage. The State can borrow today at less than 1 per cent and doesn’t have to flog assets to funds which are only short-term money junkies dressed up as long-term players.
We
can also manage the transition from “property ownership” mindset to
“accommodation users” mindset.
[How? Why should ‘we’ the owner-occupying
class? This is fun! We feel wealthy! What has posterity ever done for us?]
We move from a short-term wealth
extraction mentality to a lifetime stability mentality.
The answer to financial problems is
financial creativity. The bond market can fix the housing problem. It allows us
to time travel, to build today and pay tomorrow. This is the essential
time-warping alchemy of money. It allows us to be good ancestors. Let’s use it.
Link for this article (paywall)
David
McWilliams: The property system won’t crash like 2008, but painfully grind to a
halt (irishtimes.com)
