Aren't there a lot of people living in really bad conditions in China?
Why does the Chinese government not allow these people to move into these empty buildings? Wouldn't any rent being paid be better than the buildings sitting there earning nothing?
It could be done with a lottery or with very clever analysis of who would be best suited for these buildings. (need teachers, butchers, shop keepers/merchants, police, fire-fighters, etc., in the appropriate amounts)
The buildings just sitting there seems like the worst option, doesn't it?
I'm probably very ignorant on the economics of this type of thing but I would be very interested in learning. Does anyone know of a detailed explanation of why these buildings aren't being populated?
I also never understand why it's seen as so important that real estate prices go up. Statements like "Chinese-based parents who are funding their children's purchases are helping the Irish property recovery." from the article always baffle me. Isn't it great if real estate is cheap? It means people can afford to live there and spend there money on other things and keep the economy going that way. I certainly prefer that over what's going on in SF.
I understand that often times people will take out mortgages against there houses if the price goes up and that way money goes back into the economy. But in my opinion that's not real money and will only lead to another 2008.
It's seen as important that real estate prices go up because a significant proportion of the population have borrowed money to invest in houses. If real estate prices fall, the wealth of people with houses/mortgages is reduced.
One way of looking at this is that a significant proportion of the population have a 'vested interest' in increasing real estate prices. Some would also argue that continuously rising house prices are economically beneficial, as if house prices fall, then the homeowners/mortgagees who lose wealth from the fall will spend less, reducing consumer spending and hence 'harming' the economy.
That's what I'm thinking, even if the property and surrounding properties are devalued now at least they would be creating an economy in the city. They could always raise the prices later. I just don't understand how empty could ever be better unless the cost of maintaining a lived in building was higher than a non-lived in building..
Then again, I see the same thing here in the US. Companies like Cisco buy huge office buildings and leave them empty for years. I suppose it's because building prices are cheap now. I always thought it was because there was a movement for workers to work from home more.
> Isn't it great if real estate is cheap? It means people can afford to live there and spend there money on other things and keep the economy going that way.
Real estate prices rising means that the people are getting more wealthy. When real estate prices fall, it means that people are most likely getting less wealthy.
> I understand that often times people will take out mortgages against there houses if the price goes up and that way money goes back into the economy.
What you're describing here is called "re-financing", it's a perfectly normal means of borrowing money against your house if you have enough collateral. I've never heard of people doing it so that money goes back into the economy, it's usually to re-invest money into your house like for construction or whatever, and your monthly payment just increases.
>Real estate prices rising means that the people are getting more wealthy. When real estate prices fall, it means that people are most likely getting less wealthy.
That uses real estate prices as an indicator for how the economy is doing. However, it doesn't mean the economy gets better because real estate prices are up. This almost reminds me of the backyard furnaces during the great leap forward. Metal output was seen as a indicator of good industry and so Mao had everyone melt perfectly good pots and pans and other stuff to improve the indicator. However, most of the metal was useless and the pots and pans were gone.
What the article described sounds similar to me. Housing prices are way up, economy indicator looks great, but people are living on the street.
> What you're describing here is called "re-financing", it's a perfectly normal means of borrowing money against your house if you have enough collateral. I've never heard of people doing it so that money goes back into the economy, it's usually to re-invest money into your house like for construction or whatever, and your monthly payment just increases.
So the money does go back into the economy.
Also: Not all re-financing results in a larger mortgage than before. Some people re-finance to get lower interest rates on the same or smaller principal.
"Real estate prices rising means that the people are getting more wealthy. When real estate prices fall, it means that people are most likely getting less wealthy."
Can you elaborate? For most necessities, we're happy when the price goes down. But for housing, we're happy when it goes up. Why? What's so special?
Because people invest absurd sums of borrowed money into houses? If people borrowed hundreds of thousands to invest in for instance the corn industry, they'd be cheering for the price of corn to go up.
When house prices go down, many people really do become less wealthy, because they have lots of money invested in houses. Similar to how Google's shareholders would become less wealthy if the value of Google stock fell by 90%.
The difference between Google stock and a house (if you only have one) is that you need the house, but I have not practical value for Google stock other than it's monetary value. If I sell my house I need to buy another one or rent. So I am happy if my house's value goes up, but only if it's relative to other houses in areas I would be interested to move to, because it would open the option to swap it out for another one that's better or in a location I would prefer. So if real estate prices go up everywhere that wins me nothing. I am rich, but only on paper.
Housing being relatively cheap also allows for people with low capital to try out business ideas that they couldn't elsewhere. Berlin in the early 2000s was filled with awesome little shops, restaurants and cafes that would have been impossible in any other comparable city. One of the big reasons was the cheap real estate.
Good point. Even if real estate prices going up everywhere wins me nothing, however, real estate prices going down always causes me a loss if I've purchased a house with borrowed money. For instance, if I borrow $500k to buy a house, and its value soon after falls to $300k, I still owe the bank 500k yet my assets are only worth $300k, meaning my net worth is down by $200k. If I was renting this wouldn't happen.
I think culturally there's too much willingness to buy houses with borrowed money. The proverbial average Joe wouldn't leverage themselves to buy any other investment worth hundreds of thousands with borrowed money, yet it's seen as perfectly reasonable to borrow hundreds of thousands of dollars to buy a house. The inherent risk involved in investing a large sum of borrowed money just seems to be ignored, and then people do everything they can to keep house prices rising in order to avoid this risk materialising.
For most things, we don't go to a bank and borrow 80-90% of the principal and pay it off over 30 years, effectively paying 2.5 times what we borrowed. If the house is worth less than what we paid for it, we made a really bad investment. In fact, if the value hasn't more than doubled, ... You get the idea?
Since most people at that point would declare bankruptcy, if house prices dropped by enough to make it really worth their while to do that, banks would be screwed (since they have at most 2% reserve).
If banks are screwed, companies and countries can no longer roll over debt (for example in the US that would mean the Federal government would have to raise tax to 100%, and even then it would take a year before they could spend a single dollar again). The US state would be bankrupt in less than a month if interest rates rose to about 5%. Europe would be bankrupt in less than a month if interest rates rose to less than 2% (because they'd have to replace cheap loans with expensive ones they can't pay. The alternative is to pay back the money, but you know, if you can't pay 1% of the money, it seems unlikely that you can pay 100%).
Most companies also roll over debt. Most companies are not like Google and Facebook. So if this happened, and they could not roll over debt, companies like Exxon Mobil, GM, ... would simply be bankrupt. Since most people who have jobs have jobs at companies like these ...
Why do they do it this way ? It's the modern way of printing money. They switched to it because giving the state direct control of the money printers has always led to collapse. At the end of the 19th century, it was leading to constant collapses of currencies, sometimes 5 years or less apart. These collapses came with revolutions, wars, ... very ugly. So now we have the loan system.
Now I guess we see who's smarter : the US/Europe who "loan" money, or China who prints whenever they feel like. There's a few other tiny banking systems that feel they should get a second chance (seems even more lunatic than the China way to me though). History has not yet shown how the Western system can fail, but it has shown time and again that the system China is currently using blows up. "This time it's different", well let me give the standard answer every economist gives : "that could very well be true <chuckle>".
Money only works as long as it's mostly not spent, but in can rotate through the system indefinitely. So as long as the circle "banks -> companies -> people -> houses -> banks" works, with the central bank controlling how much money banks have to keep inflation stable ... Parliaments and dictators have shown themselves incapable of this. But of course, the western system is effectively a system that is an unknown. Every system fails at some point, we may very well be at the point where the western loan system fails.
But I don't think so. History would seem to indicate China has some room to grow, but will collapse into chaos before a few decades pass. The western system will probably carry on until it doesn't. But that could be millenia away as far as we know.
I've never heard of people doing it so that money goes back into the economy, it's usually to re-invest money into your house like for construction or whatever
Isn't spending the extra money on construction sending the money back into the economy?
The rent in San Francisco and Marin County is going up too
fast. I hate to say this on this board, but I'll be glad when the tech bubble bursts. I have some friends in San Francisco and I'm so glad they are protected by rent control. Marin County only has rent control in San Anselmo.
If you live in San Anselmo and you live in a detached "Mother in-law" unit you have rent control. As to Landlords, who consistently raise rents to whatever the market bares--don't complain when your Tenants really don't
give a dam about your property, or you? Your tenants know
the difference between gouging, and reasonable rent increases. Being a Landlord is a little different than
making money in the stock market. That person who has
carved out a litte life in your community, and home--sometimes as to pass you in the Hallway in order to get to
the bathroom? "But, I'm just doing what Everyone else is doing?" Sometimes--relationships are more important than
maximizing capital, maybe that's how the term mother in-law
unit came to fruition? "Hell, throw her out--I hear it's
cheap to live in Chicago? By Mom!" I just don't get it I
guess?
Rent control is what makes the cost of rent go up fast. You get this right?
If you're a landlord and afraid that rent control will cheat you someday, you front-load the difference by setting rent at an insane rate before anyone moves in. And since all the other landlords are doing the same, you don't have to worry about anyone undercutting you.
Landlords can charge what they like. But there are Local Housing Allowance rates. These are used by local councils - the organisations who pay Housing Benefits - to set maximums for different styles of properties. (HB is, like the rest of the benefit system weirdly complex but at least LHAs mean someone can understand the maximum possible rent they might be entitled to.)
So a person wanting to claim housing benefits has to seek a property priced according to the LHA rates. Since this is a reasonable portion of the rental market people not claiming that benefit also have those cheaper properties available; or they can pay whatever they like for more expensive properties.
(People claiming HB used to be able to claim the actual LHA rate, and keep the difference between the LHA and the rent. Government thought this would encourage rent negotiation, by giving people claiming benefit a strong incentive to get cheaper rents. Sadly, HB is subject to massive amounts of fraud and so that system was subverted quickly by fraudsters.)
Sure benefits rates are set by the government but there's no corresponding measure to ensure the market will provide properties at that rate. The government has just cut 14-25% off the rates they'll pay with their "bedroom tax" policy, hoping that people will reallocate themselves to properties more efficiently. But after a year of the policy being in effect, 60% of people affected are in arrears with their rent, i.e. most people have just stayed put and hoped for the best.
Bedroom tax has been in force for people in private accommodation for many years. The new bedroom tax only affects people in public housing.
The bedroom tax is stupid. The aim is to make people move to smaller properties. People need money to move - you need to pay any existing rent arrears; any utility arrears; you then need a deposit and a month's rent advance for the new property (but I don't know how that works for public housing); and then you need vehicles to do the moving. Right at that point where the person needs more money they have some money taken off them.
Since the government likes "Nudge" they should have combined bedroom tax with a package that does all the logistics for moving and a single long term loan to cover some tightly controlled costs of moving. This would only be available to people who need to move in the next year or so after the introduction of the bedroom tax.
I haven't really looked at your poll, but:
> On average people think that 27 per cent of the welfare budget is claimed fraudulently, while the government's own figure is 0.7 per cent.
This says nothing about the amount of fraud in HB compared to other benefits. If there is near zero fraud in all benefits except HB it'd be fair to say that HB was riddled with fraud.
Rather than relying on a biased (nothing wrong with that, but a union using a YouGov poll is clearly using the poll to support their position) source using an online poll here are the actual figures: https://www.gov.uk/government/collections/housing-benefit-re...
> The total GB value of Housing Benefit (HB) overpayments outstanding at the
beginning of Q2 (2013/14) stood at over £1.3 billion; an increase of 10% on this point
the previous year.
£1.3bn per quarter is a substantial amount of money, even if it's a small percentage of total HB paid.
Note also that the amount of fraud present in HB has severe affects on people legitimately claiming HB: it makes ministers (who seem to ignore actual figures) want punitive HB regimes; it makes councils spend time and money on fraud detection which makes claiming HB unpleasant and lengthy; it increases the evidence burden for claimants which means that bank / building society statements are requested by councils which is pretty unpleasant and increases risks of data breaches.
SF could fix pricing without rent control by making more units available. New buildings being made, only going to 6 floors -- that's silly. Or vastly improve public transit so that it's seamless to live further away.
Complaining about people charging as much rent as the market will hold is as silly as being upset McDonald's is charging as much as they can. It's like, to be expected. Otherwise, you're effectively asking the landlord to gift you money.
A low rental price on a high-end condo would immediately devalue the condo and any surrounding units - which is worse to the property development people than no rental income at all. They live by essentially propagating high prices for development.
These questions aren't dumb. In fact, they stem from a sense of how things should work and asking them lead to exploration to why things aren't as we expected. That's how interesting and awesome things are discovered.
I don't have all the answers as this issue is very complex.
I try to answer parts of it based on what I know (from travels in China and reading articles about China).
First, there really aren't that many ways to invest your money in China. The equity market there is quite nascent and rocky. Fraud happens quite a bit more than the US and there simply aren't that many choices. The finance industry in China is underdeveloped and heavily regulated.
The other issue is that a lot of the money was borrowed from state owned banks when lending was cheap and there was a lot less accountability.
Lastly, China runs a pretty big trade surplus.
So basically the conditions lead to a situation where China was or still is awash in capital and very few places to invest. Real estate really isn't that bad of a choice. China moved 500 million people out of poverty and into the middle class in the last couple of decades. Those people will want places to live. In the long term, real estate in China isn't a bad bet but all that wealth China created need to trickle down to people and get spread among the larger population so they can afford to live in these new places.
Just as a general observation, China's development is very uneven. They are good at what they've focused on but lacking systematically (for example, great highways and roads but no one really enforcing traffic laws so people drive the wrong way all the time). They lack larger systems that make everything work together. Those things can't just happen overnight like China's manufacturing industry did. It will take time for them to realize the problems and find solutions to them.
I wonder how difficult it would be (regulation wise) to create hedge-funds in China to help potential investors put their money in more diverse (and relatively safer) investments.
If you can navigate the politics, personalities, culture, and regulations, there is A LOT of money to be made doing that in China. In general, there is a lot of money to be made in China selling the level of sophistication common in the West but doing it in a way that's culturally acceptable to the Chinese. If you're interested, check out James Fallows' "China Airborne". It's about the nascent airline industry in China but it's a bellwether for other nascent sophisticated industries in China. For example, when Boeing needed to get China to follow the same strict practices that the US airlines do, they had to tell the Chinese that they need to meet the "international" standards. While it is true the standards are international, what Boeing didn't mention is that the US pretty much wrote those standards. The Chinese find it a lot easier to accept that it's an international standard everyone has to follow instead of an American standard.
Nobody is banking on that being true later either, though it is the law of the land now. What is the gov going to do at the 90 year mark, confiscate everyone's home whose ancestors bought 90 years ago? Tricky....
Not really a detailed explanation but when I was there a few months ago the guy I was with said that a lot of them were sitting around unfinished because they didn't have any buyers. A lot of them are so called luxury buildings where I'm sure the developers don't want people who can't afford that type of life living, they were pointing out buildings where apartments were 1.5M RMB ($250k) which given the wages in China is just a bit ridiculous.
The factory I was visiting was constantly complaining about how nobody wanted to work in the south of China anymore and that all the workers had moved up to Shanghai, yet there was all this construction and plans for huge growth in the area. I just couldn't figure out how they were justifying these plans.
>Why does the Chinese government not allow these people to move into these empty buildings?
For the same reason why the American government doesn't let people move into the large number of empty high end luxury apartments in downtown Manhattan.
Those buildings are not populated for several reasons:
1.Sits in the suburb area where the public transit is very poor.
2.Lacks basic public facilities like schools and hospitals.
Basically, those ghost cities are the outcomes driven by the local government's insatiate desires to sell more lands to real estate developers, the revenue from which has become a critical part of its total income.
I have a feeling the problem is jobs. What are the industrial jobs that will form the community's foundation? No jobs means nobody wants to move there.
Perhaps, but I think the problem actually might be "new wealth doesn't know how to invest". In other words, people who've come into the cities, earned some money, and now are wondering what to do with it.
Why does the Chinese government not allow these people to move into these empty buildings? Wouldn't any rent being paid be better than the buildings sitting there earning nothing?
It could be done with a lottery or with very clever analysis of who would be best suited for these buildings. (need teachers, butchers, shop keepers/merchants, police, fire-fighters, etc., in the appropriate amounts)
The buildings just sitting there seems like the worst option, doesn't it?
I'm probably very ignorant on the economics of this type of thing but I would be very interested in learning. Does anyone know of a detailed explanation of why these buildings aren't being populated?
There are several Eiffel Tower replicas all over the world, 3 in China, 1 of them is full-scale: http://en.wikipedia.org/wiki/List_of_Eiffel_Tower_replicas