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..
We could argue all night (day) on the right calculation for inflation. We can also argue about "all other things being equal". But I do not think my example was a stretch of the imagination. The fact is real per capital income has increased in Australia, which means if you think inflation is understated, the you think real GDP growth is undestated by the same degree. Given we have 4.9% unemployment, I think that is a bit of a stretch.
So we have enjoyed real wage growth (however you want to measure it). And that leads to a sustained increase in house prices > wage growth.
Quote:
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.
I will agree "forever" is an abstract concept. Perhaps I should use Shadow's terminology.
If you wish to discuss this particular issue further, I suggest you start a theology thread.
I will agree "forever" is an abstract concept. Perhaps I should use Shadow's terminology.
If you wish to discuss this particular issue further, I suggest you start a theology thread.
yes, I would stick to that safer terminology.
To give just one example...
I believe that from strindberg's own post, Perth 'enjoyed' a 3% price rise above inflation since 2007... it would not be a stretch of the imagination to have a few bad years where that 3% is wiped out... does this then mean your 'indefinate' period has now got a definite ending ? or do we just assume that since prices will rise at some time in the future, this is just a hiccup...
Or we could use the gold coast example where house prices certainly have not managed to follow the example you gave ... that, B-B is the real world... despite the possibility of indefinite 'real' house rises above wages.
I'm not very good at the theology debates ....I'm just not fixed enough on one religion, although I'm happy to listen to others ideas on the topic ...
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.
:c)
This is mathematically & technically & practically possible. It is very simple, it uses the real wage growth on the non-mortgage expenses to support the house price growth > wage growth. Mathematically : house price next year = house price this year x (1+wage growth) + real wage growth x non-mortgage expenses/svr. The only condition is that all non-mortgage expenses increase (on average) in accordance with inflation and the real wage growth >0.
. The only condition is that all non-mortgage expenses increase (on average) in accordance with inflation and the real wage growth >0.
yes.. and for those periods where they don't follow your condition(s) ?
Well, I guess we then have a definite end to that model.
I can state the the price of bananas can rise faster than the price of tomatoes and set my own conditions as to how that is mathematically possible to occur indefinitely ...
However it will, most likely, definitely end at some point.
. The only condition is that all non-mortgage expenses increase (on average) in accordance with inflation and the real wage growth >0.
yes.. and for those periods where they don't follow your condition(s) ?
Well, I guess we then have a definite end to that model.
I can state the the price of bananas can rise faster than the price of tomatoes and set my own conditions as to how that is mathematically possible to occur indefinitely ...
However it will, most likely, definitely end at some point.
During the periods when the real wage growth = 0 then the house price growth = inflation growth. It wont end the model at all. check the formula again : house price next year = house price this year x (1+wage growth) + real wage growth x non-mortgage expenses/svr.
This model is using the difference between wage growth and inflation (= real wage growth) to support the house price growth > wage growth.
Of course that bananas can rise more than inflation, but for how long ? and we do not eat bananas daily & forever don't we ? also bananas may be just a fraction of the non-mortgage expenses and maybe balanced with other non-mortgage expenses that rose less than inflation. The condition is that all non-mortgage expenses increase (on average) in accordance with inflation and the real wage growth >0.
During the periods when the real wage growth = 0 then the house price growth = inflation growth. It wont end the model at all. check the formula again : house price next year = house price this year x (1+wage growth) + real wage growth x non-mortgage expenses.
This model is using the difference between wage growth and inflation (= real wage growth) to support the house price growth > wage growth.
Of course that bananas can rise more than inflation, but for how long ? and we do not eat bananas daily & forever don't we ? also bananas may be just a fraction of the non-mortgage expenses and maybe balanced with other non-mortgage expenses that rose less than inflation. The condition is that all non-mortgage expenses increase (on average) in accordance with inflation and the real wage growth >0.
Can you please prove that house price growth = inflation growth for those periods where real wage growth = 0 (or even < 0) ... I don't see that in the real world as set in stone anywhere.
If real wages go up by X% and real house prices go up by < X% then your model is immediately broken... look around, that is the case in parts of Australia already.
If your model was so practically possible then I'm sure America would not have broken it quite a while ago..
it's just a nice looking formula you constructed... nice in theory, but the housing market will never suck every spare dollar above cost of living into it's price structure... it is funny none the less to hear people propose that it is not just mathematically & technically possible, it is also practically possible.
During the periods when the real wage growth = 0 then the house price growth = inflation growth. It wont end the model at all. check the formula again : house price next year = house price this year x (1+wage growth) + real wage growth x non-mortgage expenses.
This model is using the difference between wage growth and inflation (= real wage growth) to support the house price growth > wage growth.
Of course that bananas can rise more than inflation, but for how long ? and we do not eat bananas daily & forever don't we ? also bananas may be just a fraction of the non-mortgage expenses and maybe balanced with other non-mortgage expenses that rose less than inflation. The condition is that all non-mortgage expenses increase (on average) in accordance with inflation and the real wage growth >0.
Can you please prove that house price growth = inflation growth for those periods where real wage growth = 0 (or even < 0) ... I don't see that in the real world as set in stone anywhere.
If real wages go up by X% and real house prices go up by < X% then your model is immediately broken... look around, that is the case in parts of Australia already.
If your model was so practically possible then I'm sure America would not have broken it quite a while ago..
it's just a nice looking formula you constructed... nice in theory, but the housing market will never suck every spare dollar above cost of living into it's price structure... it is funny none the less to hear people propose that it is not just mathematically & technically possible, it is also practically possible.
............"Can you please prove that house price growth = inflation growth for those periods where real wage growth = 0 (or even < 0) ... I don't see that in the real world as set in stone anywhere."........
Easy, House price next year = house price this year (1+wage growth) + 0 x non-mortgage expenses. and due to real wage growth =0 then wage growth = inflation. so : house price next year = house price this year (1+inflation). So house price increases in accordance to inflation.
You should check the previous post from b_b and Shadow, that we are discussing about a model that the house price growth > wage growth (Mathematically, Technically and Practically possible). We are not talking about a nature law/ postulate that this model has to be followed. btw : On average the Australian house price had been growing > wage growth isn't it ?
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.
I am not sure this is practically possible at all for the long run.
How can the inflation of these other items remain at 3% when 2 of the major inputs - real estate and labour - are running at 7.4% and 4.5%?
We need to look a bit deeper, the books need to be balanced.
Possible ways to do this:
1) Increased productivity / technology - not really Aussie specialities any more! 2) Import cheap stuff - Australia has been investing heavily in this area for years now! But this will represent deficit that will not be able to be used to pump into houses. 3) Increased debt - we have plenty of recent examples around the world of increasing house prices + low inflation + increasing wages + increasing standard of living being balanced by a shed load of shiny new debt...hasn't worked out too well in the long run though.
Thatguy said it was mathematically impossible for house price growth to beat wage growth forever.
That is all that was being refuted. Being that old bear chestnut. It is mathematically possible. It does really matter whether it is practical, it's just a refutation of silly bear dogma.
The fact that it has also happened for reasonably long periods in a number of countries doesn't help the bear case.
“You Keep Using That Word, I Do Not Think It Means What You Think It Means” - Inigo Montoya
Thatguy said it was mathematically impossible for house price growth to beat wage growth forever.
That is all that was being refuted. Being that old bear chestnut. It is mathematically possible. It does really matter whether it is practical, it's just a refutation of silly bear dogma.
The fact that it has also happened for reasonably long periods in a number of countries doesn't help the bear case.
it is mathametically possible to prove a lot of things, as long as you set conditions which are unrealistic.
An ball can be thrown up by a child and continue to rise into the air for ever... there is maths to prove it.
The only condition is that gravity is less than the propulsion...
Simple :rolleyes:
and yet bears bang on their drumb that this is not proof that ball heights can not rise forever... silly old bears...
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