No, it's not. Check the rental returns on his maths.
what? who needs rental returns!! all you need is richer and richer people trading 'investments' between each other for ever increasing amounts of money. then the capital gains is all you need!
why would they continue to pay ever increasing amounts of money to each other in spite of all fundamentals, logic and common sense? because! they know the person who buys it off them will do the same!!
It is both technically and mathematically possible for house prices to rise faster than incomes indefinitely, as long as the population is growing and demand exceeds supply. As long as the population keeps growing, and supply is limited, then the pool of houses will become increasingly concentrated into the hands of the wealthiest people, and the house price to income ratio can keep rising indefinitely.
It is both technically and mathematically possible for house prices to rise faster than incomes indefinitely, as long as the population is growing and demand exceeds supply. As long as the population keeps growing, and supply is limited, then the pool of houses will become increasingly concentrated into the hands of the wealthiest people, and the house price to income ratio can keep rising indefinitely.
You don't even need that condition for house prices to rise faster than wages for ever.
So long as you have broad real wage increases, then the excess income over daily needs can go to other things - like real estate.
For example. Imagine a person earns $100 per year, and that income is spent as follows
Now imagine inflation grows by 3% per annum, and real wages grow by 1.5% per annum (so nominal wages growing at 4.5% per annum). In ten years time, income is now $155.3. On average everything increases in line with inflation so that the following is required for expenditure Food 26.9 (growing at 3% per annum) Clothes 26.9 (ditto) Entertainment $26.9 (ditto) Utilities $13.4 (ditto)
Excluding mortgage, total expenditure = $94.1. This leaves $61.2 to be spent on a mortgage.
The amount available to be spent on a mortgage has increased by 7.4% per annum - significantly higher than wage growth, while still providing the same standard of living. Assuming interest rates stay the same, house prices can grow by 7.4% per annum on a sustainable basis without any need to concentrate ownership.
You don't even need that condition for house prices to rise faster than wages for ever.
So long as you have broad real wage increases, then the excess income over daily needs can go to other things - like real estate.
I guess that's another way to look at it - the indefinite house price growth can come from population growth or real wage growth.
In my example (growing population) average incomes can remain flat, yet house prices can still rise indefinitely.
In your example (rising wages) population growth can remain flat, yet house prices can still rise indefinitely.
I prefer to use 'indefinitely' rather than 'forever' in my example... because at some point the country/planet cannot support further population growth.
If you get all three... population growth, real wage growth, and limited supply... boom!
It is both technically and mathematically possible for house prices to rise faster than incomes indefinitely, as long as the population is growing and demand exceeds supply. As long as the population keeps growing, and supply is limited, then the pool of houses will become increasingly concentrated into the hands of the wealthiest people, and the house price to income ratio can keep rising indefinitely.
It might be technically and mathematically possible, but not possible the real world.
Unless you want to simply change that claim to a set (definite) period.
As for Forever ? I don't think you can bank on all of those events to continue that long..
Forever is a loooong time for those conditions to continue, and for no disaster to occur.
Wars, tsunami's and earthquakes all have a way of making property devalue, as do exploding suns.
I guess that's another way to look at it - the indefinite house price growth can come from population growth or real wage growth.
In my example (growing population) average incomes can remain flat, yet house prices can still rise indefinitely.
In your example (rising wages) population growth can remain flat, yet house prices can still rise indefinitely.
I prefer to use 'indefinitely' rather than 'forever' in my example... because at some point the country/planet cannot support further population growth.
If you get all three... population growth, real wage growth, and limited supply... boom!
ahh... so 'indefinatly' is not forever...
IC... well perhaps we are in agreement then.
There is indeed a limit to this disparity of incomes and house prices... it's just that you can not define that limit in time...
But it has been possible in the real world - across many many countries.
I guess that depends on what you want to call 'indefinite'.
I can say that you can hold your breath for an indefinite amount of time... that does not mean it can be forever does it.. It just has not been measured or demonstrated..
The claim was that house prices can rise faster than incomes forever ... that stands as incorrect and remains a stupid claim.
Perhaps Barns can give us another lecture on basic economics.
Your original comment was not about "forever". You added that later in the post.
And stands for what? Another Myth.
It has been shown theoretically using very normal assumptions that such a claim does not stand up to scrutiny.
Further, there is evidence around the world which show plenty of Countries have had house prices rising faster than income for a long period of time
So there is the theoretical argument, and the observation which supports the argument.
I'm not about to get into semantics - the fact is, the -house prices can't grow faster than income-argument, is a nonsense.
Well.. I did not introduce the term 'forever'.. it was in the thread before I posted.. read back. That it why I said it was wise for barns to step back from that stupid claim.
Also.. your demonstration of the maths behind that claim is hardly conclusive proof in the real world... but rather abstract construct of a Pollyanna world where 'inflation' is a real reflection of cost of living, where bracket creep does not occur, and where the demographic of renters gets 'real' wage rises as opposed to just keeping their heads above water of real inflation ... that is not the real world, but it sounds nice..
also You can say that the price of anything can rise faster than something else... as long as it happens for a minimally short period of time in the wider time line then you are correct, it can and has occurred for an indefinite period of time. It does not mean that this can continue forever, a fact that we seem to agree on.
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