Population and Housing

[ijmorlan]

To bring this thread back to housing, I wondered what would happen to the housing market if:
1. All existing mortgages were canceled immediately and houses valued at whatever had been paid for in the mortgage to date.
2. All housing would be price restricted and only sellable for the equivalent of what the owners had paid for it in the first place, perhaps indexed to inflation.

The goal: allow homeowners to not still be paying off their mortgage in their retirement years.

The banks (and all securities that are invested in mortgages) would take a hit for sure, but the housing market would be cooled pretty quickly.

I realize that this would be a pretty heavy-handed way to cut house prices, but it was an interesting thought when considering that the vast majority of the housing stock that was built over the last 100 years is selling for prices well above what they might have been allowed to increase in value due to inflation.

“Take a hit”?

Yes, I think confiscating $1.4 trillion just in Ontario (according to https://www.fsco.gov.on.ca/en/understand...iness.html) would definitely result in the lenders taking a “hit”. It would probably bankrupt them. This amount is about 3 times as much as the total market capitalization of the Big 5 banks.

Obviously, this would kill the credit market for many years, until a new government can successfully convince prospective lenders that their loans won’t be confiscated.

And it would do nothing to cause housing to be built, which is what is actually required. Instead, the economic chaos would have unpredictable but certainly very bad effects on the construction industry and everything else.

Remember, high prices are a symptom, not the disease itself. You don’t cure a runny nose by blocking the nostrils.

Now just for fun, let’s think about what a typical property owner would do under these rules, assuming they went into effect and pretending the economy still existed. Since they would not be permitted to sell for full value, they probably wouldn’t sell but would instead rent. Just because there is a rule saying they can’t sell for more than a certain amount doesn’t mean their property doesn’t have the same intrinsic value it had before, so renting it out whenever they would have sold would a way to realize the value of the property. Incidentally, this is also why banks used to give out toasters and why one has to suck up to the landlord to get an apartment in Manhattan.

So I think the number of properties changing hands would be tiny. Instead, their existing owners would rent them out indefinitely. It would become effectively impossible to assemble land for development, meaning it would be difficult to build new apartments in place of lower density housing.