The Cost of High House Prices

ShedTower

I'm saving for a house as a FTB at the moment. Saving for the deposit is not easy but that's fine and I don't mind doing it.

A friend runs a hobby shop which I frequent quite often. I was chatting to him the other day and apologised for my lack of spending lately and explained the situation. Of course he said he doesn't mind but it's a small shop and I'd be a good customer.
It got me thinking though - I'm no longer handing over money at the local deli, no longer spending as much in supermarkets, no longer spending as much on clothes/shoes, no longer buying tickets to support local causes, not going on as many trips around Ireland and not frequenting restaurants/pubs as often.

Instead all this money is being stored away until sometime in 2021 or 2022. So what cost are high house prices and high deposit requirements having on the economy? And is there a better way?

Geuze

Correct.

These are known as economic rents.

On new houses, the rents are captured by the landowner, whose land is rezoned.

They make huge gains. They are rentiers, they make huge gains for very little effort.


The property developer does put in effort, and takes risks, fair enough. But their profits are still high.

beauf

ShedTower wrote: »

...And is there a better way?

... yes move somewhere cheaper?

Gumbo

ShedTower wrote: »

I'm saving for a house as a FTB at the moment. Saving for the deposit is not easy but that's fine and I don't mind doing it.

A friend runs a hobby shop which I frequent quite often. I was chatting to him the other day and apologised for my lack of spending lately and explained the situation. Of course he said he doesn't mind but it's a small shop and I'd be a good customer.
It got me thinking though - I'm no longer handing over money at the local deli, no longer spending as much in supermarkets, no longer spending as much on clothes/shoes, no longer buying tickets to support local causes, not going on as many trips around Ireland and not frequenting restaurants/pubs as often.

Instead all this money is being stored away until sometime in 2021 or 2022. So what cost are high house prices and high deposit requirements having on the economy? And is there a better way?

On the flip side there’s people that bought in the last boom. Maybe settling into their mortgages and they are spending in the deli, local shop etc. it’s swings and roundabouts.

It’s not only FTB that feel the struggle.

ShedTower

Gumbo wrote: »

On the flip side there’s people that bought in the last boom. Maybe settling into their mortgages and they are spending in the deli, local shop etc. it’s swings and roundabouts.

It’s not only FTB that feel the struggle.

Well that's true.

I wasn't complaining of the struggle. Just the cost of all this money being out of circulation for so long. I suppose it is with the bank though and not stashed under the bed.

Geuze

ShedTower wrote: »

Well that's true.

I wasn't complaining of the struggle. Just the cost of all this money being out of circulation for so long. I suppose it is with the bank though and not stashed under the bed.

Savings are not idle.

Your savings are loaned to others, who spend them.

So that isn't an issue.


The issue is you and me having to pay too much for houses and rent, and having to borrow too much and pay too much interest, to the benefit of the landowners and property developers.

KilOit

I don't see how house prices could be that much cheaper. Looking at the process on a simple extension to a house on one of the many home programs, the weeks to months of work with 2-3 guys working around the clock and the odd specialist doing odd jobs minus all the delivery and materials required.

These aren't low paid workers and when i comes to fitting out a house their must be a dozen lads involved in the process.

ShedTower

Geuze wrote: »

Savings are not idle.

Your savings are loaned to others, who spend them.

So that isn't an issue.

That's the answer really.

Carry on..

Geuze

KilOit wrote: »

I don't see how house prices could be that much cheaper.

Land/site costs are way too high.

dotsman

ShedTower wrote: »

That's the answer really.

Carry on..

There's even a lot more to it than just that.

A much wider view would be to say that, yes, for a few years (while saving for a deposit and the first few years of paying the mortgage), your spending in the local economy is down. However:

• as Gueze said, some of that money is still being lent out, so is being used by other people/businesses;
• upon buying the house, you are spending a huge amount in one go (with that money flowing through landowners, developers, a huge variety of labourers, architects, banks and solicitors etc); and
• over time, as your mortgage repayments become a smaller percentage of your income, you are now spending more in the local economy than you would if you had stayed renting.

Thus, buying a house, while it can involve a temporary, minor dent, is ultimately of significant benefit to the economy (and to the house buyer) overall.

fash

If rents and accommodation purchase prices were lower:
people are able to happily survive on lower incomes - increasing the economy;
those on higher than the bare minimum salary have much more discretionary income to circulate in the economy and enjoy themselves.
Check out Vienna for a relatively wealthy city where you can easily rent a (e.g.) light filled 2 bedroom apartment in a safe, quiet part of the city, next to a metro station with lots of cafes, shops, parks etc nearby for €900/month - including heating, water etc.
Cheaper accommodation gives people a lot more freedom to live their lives as they want - and should be a government priority.