Let's have a class thread! It'll be fun!
- Thread starter ymu
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But choosing to buy a better house than you otherwise would is in a completely different category. That's not what Blagsta has done, so it isn't relevant. The claim is that Blagsta can benefit from house price rises in and of themselves. But this isn't true, is it? He doesn't want to reduce his quality of life by trading down. He just wants to live in his house. If he lives in his house for the rest of his life, how has he gained anything from its notional value?
Random
Ethnic nalgocrat
He can borrow against the notional value.
Louis MacNeice
Autumn Journalist
Access to credit is only valuable if you have the means to pay it back; it has not been a great experience for many who have faced both bankruptcy and the loss of their homes.
Louis MacNeice
Mortgages are a good way of keeping people in their place. It's a hard decision to go on strike, for instance, if you're mortgaged to the hilt.
It's also no money making scheme if your house priice drops dramatically (leaving aside the fact that most normal people simply want a place to live and that those who treat their homes as businesses are usually deranged two bob millionaires.) At some point in the future, house prices will plummet, leaving millions in negative equity.
Big fucking con-trick.
It's also no money making scheme if your house priice drops dramatically (leaving aside the fact that most normal people simply want a place to live and that those who treat their homes as businesses are usually deranged two bob millionaires.) At some point in the future, house prices will plummet, leaving millions in negative equity.
Big fucking con-trick.
Well:
(a) I'm not sure I'd really extend the idea of value creation to a secondary market. If you're going down that route then there are tonnes of things that people could do. They could buy an option against the whole housing market, for a start. You don't need to have bought a house to benefit from house price rises if you are bringing secondary markets into it.
(b) The creation of debt is not the creation of wealth. That misconception is why we're in this bloody mess in the first place. If he borrows against the house then he has to pay that money back. His "balance sheet" at the moment of borrowing shows no net profit.
His only way of creating wealth from this borrowing is to invest the money borrowed in a risky asset class and hope that the return -- after tax -- exceeds the commercial borrowing rate he has obtained from the bank. A simple no-arbitrage rule will tell you that there is no way of guaranteeing this. (Frankly, I think he'd be doing well to achieve it at all, as it happens. But anyway.) Essentially, he has massively hiked up his personal risk as an offset to any hoped-for gains.
So, in short, I don't buy this idea that borrowing against the notional value is synonymous with benefiting from house price rises. It doesn't fit with anything I know about financial economics.
(a) I'm not sure I'd really extend the idea of value creation to a secondary market. If you're going down that route then there are tonnes of things that people could do. They could buy an option against the whole housing market, for a start. You don't need to have bought a house to benefit from house price rises if you are bringing secondary markets into it.
(b) The creation of debt is not the creation of wealth. That misconception is why we're in this bloody mess in the first place. If he borrows against the house then he has to pay that money back. His "balance sheet" at the moment of borrowing shows no net profit.
His only way of creating wealth from this borrowing is to invest the money borrowed in a risky asset class and hope that the return -- after tax -- exceeds the commercial borrowing rate he has obtained from the bank. A simple no-arbitrage rule will tell you that there is no way of guaranteeing this. (Frankly, I think he'd be doing well to achieve it at all, as it happens. But anyway.) Essentially, he has massively hiked up his personal risk as an offset to any hoped-for gains.
So, in short, I don't buy this idea that borrowing against the notional value is synonymous with benefiting from house price rises. It doesn't fit with anything I know about financial economics.
DownwardDog
Riding a Brompton with a power meter.
The goalposts seem to be slightly mobile here. First it was you can't realise the increase in value of a house while retaining full utility. Now your position seems to be that you can but it isn't always a good idea.
Borrowing against an asset is not the same thing as realising the value of that asset.
Louis MacNeice
Autumn Journalist
Blagsta
Minimum cage, maximum cage
You seem to be having some comprehension difficulties.
TruXta
tired
What, the body or the knowledge?
DownwardDog
Riding a Brompton with a power meter.
I tried. A house can theoretically realise some value from an increase in the value of his house and MEWing to buy another one. He still retains full utility of house A but now has house B also. Of course, this can often blow up and take his stupid working class face off but the fact remains that it's still possible.
Pay particular attention to the second paragraph.
What you are saying is financial nonsense. Investment is never without context. This is real Finance 101 kind of stuff, frankly.
DownwardDog
Riding a Brompton with a power meter.
Right, I get all that. But the point remains even though it often doesn't work it is (theoretically) possible to realise some of the value gained by the house. MEWing 20 grand is cheaper than putting it on a credit card - that cheaper borrowing is value released from the house without having to brick up the spare room.
No! Borrowing is not releasing value! It doesn't matter how cheap you manage to get the credit!
In fact, unless you make an investment with the borrowing that at least matches the cashflow of your debt servicing, you've actually destroyed value.
What you're saying is functionally equivalent to claiming that you release value by borrowing from a credit card, on the grounds that the credit is cheaper than it would be on Wonga.com.
In fact, unless you make an investment with the borrowing that at least matches the cashflow of your debt servicing, you've actually destroyed value.
What you're saying is functionally equivalent to claiming that you release value by borrowing from a credit card, on the grounds that the credit is cheaper than it would be on Wonga.com.
love detective
there's no love too small
Exactly - all DD has demonstrated here is that home ownership actually provides a bundle of use-values (roof over head, provision of security against borrowing, etc..). But the basic point remains (as it does for any commodity) that if you have the use-value of a particular thing you can't have the exchange value and vice versa. So if you sold the house to realise the exchange value you lose both the use value of a roof over your head and the use value of it as security against borrowing.
As an aside (and at the risk of reducing the revolutionary army even further) the use value/exchange value distinction is not something that originated with marx nor is it a distinction that is specific to capitalist social relations (in the sense that a society based on commodity production is not necessarily a capitalist society). Aristotle was probably the first to document the use value/exchange value distinction, a good two thousand years before Marx
littlebabyjesus
one of Maxwell's demons
How is describing a footballer's ability to extract a high price for his services as monopoly rent helpful? By extension, anyone with any marketable skill is along the same spectrum of monopoly rent. That's just a case of shifts in the balance of supply and demand determining wages level.
I actually hate coke, so no worries there.
Louis MacNeice
Autumn Journalist
He has the use of the house and the use of a different 'store of wealth', not the one contained in his house.
Louis MacNeice
Blagsta
Minimum cage, maximum cage
Blagsta
Minimum cage, maximum cage
Really? Being a student with fuck all income?
Blagsta
Minimum cage, maximum cage
What? I'm not a fucking cat.
Random
Ethnic nalgocrat
Sorry, haven't read the thread; assumed we were talking about some hypothetical.
DownwardDog
Riding a Brompton with a power meter.
If, as is at least possible if not likely, I make an investment that exceeds the borrowing costs have created value? Or is that simply impossible?
I think that was my original point - use value is subjective and varies with the owner. For your average Urban a house is simply a home for living in or, occasionally, sitting in, thinking about Gaza and gently sobbing. For normal people it has an additional use value of creating debt fuelled mayhem for buying X5s, etc.
It was hypothetical really but in response to a post by Blagsta and when you've got as little money as we do right now, the idea that somehow we benefit financially from having a mortgage is pretty offensive.
littlebabyjesus
one of Maxwell's demons
It is possible to buy a house and borrow against it if its value goes up (big if - I would not anticipate the value of a house someone bought in 2007 to return to its 2007 value for a few years yet: in Japan, house prices are still lower now than they were 20 years ago!) in order to buy another house in the hope of becoming a property tycoon of some kind. And in the process, of course, you risk losing everything.
I don't think you've fully grasped what Blagsta was saying - he doesn't want to play capitalist get-rich-quick games. In fact, I suspect that he probably thinks they are immoral - a form of exploitation. And he certainly doesn't want to put his home at risk in order to do so. Hence none of what you have said in any way contradicts his position.
To make a slightly facetious comparison - I have two kidneys. I could sell one in India for money, thus realising its exchange value, but I would no longer have its use value. It's really no more complicated a situation than that.
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