Population and Housing

[danbrotherston]

I assume what you are asking is, what would house prices be like if you could not borrow money to buy a house.

The short answer is that the prices would surely be lower. But home ownership rates would be lower, and the construction business would not exist the same way it does today. You can see the artifacts of inability to borrow for a house in most developing countries: partially-built houses , or houses where the first floor was built (and is inhabited) but the second floor has just some walls or rebar. Basically, you build as you have money, you don't just go out and buy a house.

Yes, that’s what I’m wondering about. Clearly, prices would be lower, because the buying power of most people would be less.

My suspicion is that all the housing would end up owned by those wealthy enough to buy for cash, meaning that almost everybody would rent.

Then I was thinking a bit and realized that it’s not just a thought experiment: it actually would be possible to implement this policy. If the law said that any debt secured by real property was not collectable and that foreclosure/power of sale were abolished, then it would be impossible to get a mortgage. Well, maybe from the mob, which has its own ways of collecting on debts.

I suspect that we want an intermediate level of mortgage availability that gives ordinary people enough buying power but not so much that prices go to the stratosphere.

I'll say it again, because I think it bears repeating.

Renting should does not have to be a bad thing. In a reasonable housing market, renters can pay the carrying costs of a home, and don't have to come out behind owners. This was true for at least some of our history and also the history in other places.

The problem is our housing supply, not whether it is owned or not.

And in my opinion is very unfortunate that our society looks down on renters. There can be many advantages to renting. Peace of mind, stability, and flexibility are obvious examples. But they fall apart when legislation and the market conspire to make housing an investment not a home.

Edit: Some clarification:

Renting gives you peace of mind and stability because when the roof on the house I live in right now fails, I don't need to come up with 50k to replace it, nor do I need to come up with 15k for a new combi heatpump. I also have the next 3 years of rent increases locked in the same way a mortgagee would.

On the other hand, I have the flexibility to leave any time after the lease term, for free, and any time before then for a fixed cost. Unlike an owned home which has enormous costs any time you move, to say nothing of the variability of the housing market.