A related issue I find amusing. You will hear don’t regulate at all state that it is regulation preventing housing being constructed (zoning regulations) that create rising prices which they imply is unfair. It seems to me the data shows the opposite of what those people claim. People are willing to pay more for the regulated housing markets. That means the market forces value the regulation and in order to increase the economic utility (which is represented by what people will pay) more regulation should be used not less.

The price and sale of anything is in a sense a redistribution of wealth rather than a source of creating wealth. All a price tells us is how much something is worth in comparison to other things. If house prices rise more quickly than the price of other goods, services, and assets, then the bundle of other goods you could buy if you sold your house at that price would be higher. Thats fine.

Wealth is created when goods and services are created, or value is added to them. This is really a separate issue.

“In others words the Rich Mastery and property climber type people are riding on the backs of renters and mortgagees?”

In order to look at this we have to think about how ‘freeholders’ may be using their asset to receive surplus. If higher rents followed from higher house prices we could say that the appreciation in house prices hurts renters. Rents are related to prices, however they have not experienced the significant increases that house prices have – in fact they have been moving just around inflation.

Mortgagees paid the price for a house because they believed the house was worth that much to them, there is nothing wrong with this as the intrinsic value the mortgagee derives from the house is greater than the price they paid.

Investors have not been forcing prices to rise. There has been a genuine undersupply of property, which councils have reacted slowly to. As zoning regulations are fixed up, and the supply of houses increases we will likely see the price of property fall.

What the rising asset values effectively create is a corresponding rise in claims on the economy at the expense of those who do not own such assets. But this is wealth redistribution, not wealth creation.

http://www.safehaven.com/showarticle.cfm?id=784

In others words the Rich Mastery and property climber type people are riding on the backs of renters and mortgagees?

The rental argument is an important one. People that buy property as an investment choose it based on the capital gains they expect, the associated yield (rents), and the risk associated with the asset. House prices have risen a lot more quickly than rents, and there is a lot of debate about what this means. Ultimately, when house prices rise faster than rents, the yield for the investor is falling. As a result, we must either see a downward correction in house prices, or a significant increase in rents – this depends on how easy it will be to lift rents.

If income growth stays strong, there is scope for rent increases. If it doesn’t then investors will sell property, driving down the price, thereby restoring the yield associated with property relative to other assets.

Sorry I’m not quite sure what you mean, would you be able to elaborate

“Every dollar of unearned profit [in stocks and] real estate leaves a hole somewhere”
So I’m connecting the dots between “Property Climbers” and renters and mortgagees. Maybe i make too much of that??

I wanted to keep my discussion very third person like he does, I just felt it was appropriate. I felt that saying it was his alter-ego would spoil it a little.