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Economic Multiplier Effect of Housing - $1 spent on construction generates $3 in general economy
Topic Started: 3 Aug 2013, 11:34 AM (11,493 Views)
JanesAddiction
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Shadow
30 Aug 2014, 10:07 AM
There would certainly be downwards pressure on prices - but whether prices actually fell would depend on other factors.

But the housing market itself wouldn't collapse. There would still be a housing market.

When a Ponzi scheme collapses, it ceases to exist. The market itself is gone. Just another reason why housing markets are not Ponzi schemes - even after a bubble pops causing house prices to collapse, the housing market still exists. People still go on buying and selling homes, just at a lower price point.
What does 'downward pressure' mean? Would prices fall or rise?

No ponzi schemes were markets.

But some ponzi schemes invested in markets.

When the scheme collapsed the market still existed but the last fools
to get into the ponzi scheme lost all their money and the first fools gained it.

Financial markets are zero sum Ponzi schemes are zero sum,,
The money doesnt disappear when the scheme collapses

Maybe mortgage lending is a ponzi scheme that needs immigration to sustain it?

If immigration went to zero would the mortgage lending ponzi scheme collapse?
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Shadow
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JanesAddiction
30 Aug 2014, 01:21 PM
What does 'downward pressure' mean? Would prices fall or rise?
Whether prices actually fell would depend on other factors such as natural population growth, new dwelling supply, interest rates, employment, credit availability etc. Imagine pushing down on a balloon in a swimming pool. Whether the balloon actually sinks as a result of your downward pressure will depend on how strongly you push, the size of the balloon, what type of gas it is filled with, the density of the water, whether somebody else is pushing the balloon up at the same time etc.

Quote:
 
But some ponzi schemes invested in markets

When the scheme collapsed the market still existed
The original assertion was that the property market itself was a Ponzi scheme.

If you are now saying there may be Ponzi schemes that invest in the housing market, then I suppose that's possible, although generally in a true Ponzi scheme there is no real underlying asset at all, so a scheme based on real property investment probably doesn't fit the definition of a Ponzi scheme (unless the scheme only gives the illusion of investing in real property).

Quote:
 
Maybe mortgage lending is a ponzi scheme that needs immigration to sustain it?

If immigration went to zero would the mortgage lending ponzi scheme collapse?
No, there would still be mortgage lending if immigration went to zero. In Japan, there is practically no immigration and the population is falling. House prices are falling as a result. But the housing market still exists and lenders still offer mortgages.

Time for another new account Miles? This one isn't having any more success at winning debates than the others.

Next time, try to actually change your writing style rather than just omitting some punctuation and adding unnecessary line breaks.
Edited by Shadow, 30 Aug 2014, 02:02 PM.
1. Epic Fail! Steve Keen's Bad Calls and Predictions.
2. Residential property loans regulated by NCCP Act. Banks can't margin call unless borrower defaults.
3. Housing is second highest taxed sector of Australian Economy. Renters subsidised by highly taxed homeowners.
4. Ongoing improvement in housing affordability. Australian household formation faster than population growth since 1960s.
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JanesAddiction
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Shadow
30 Aug 2014, 01:52 PM
Whether prices actually fell would depend on other factors such as natural population growth, new dwelling supply, interest rates, employment, credit availability etc. Imagine pushing down on a balloon in a swimming pool. Whether the balloon actually sinks as a result of your downward pressure will depend on how strongly you push, the size of the balloon, what type of gas it is filled with, the density of the water, whether somebody else is pushing the balloon up at the same time etc.
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Shadow
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JanesAddiction
30 Aug 2014, 02:47 PM
Silly cartoon.
I assume that's your way of conceding defeat.
1. Epic Fail! Steve Keen's Bad Calls and Predictions.
2. Residential property loans regulated by NCCP Act. Banks can't margin call unless borrower defaults.
3. Housing is second highest taxed sector of Australian Economy. Renters subsidised by highly taxed homeowners.
4. Ongoing improvement in housing affordability. Australian household formation faster than population growth since 1960s.
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peter fraser
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This is how housing adds to the economy in the USA, a not dissimilar economy albeit a different scale.
Quote:
 

May 7, 2014 - The health of housing is key for the overall state of the U.S. economy and housing stands poised to serve as an engine of job growth with the right policies in place, the National Association of Home Builders (NAHB) told Congress today.

Testifying before the Senate Banking Committee’s Subcommittee on Economic Policy during a hearing examining the drivers of job creation, NAHB economist Robert Dietz said that home building and remodeling have generated 274,000 jobs over the past 2 ½ years.

“This expansion has direct economic benefits,” said Dietz. “Housing provides the momentum behind an economic recovery because home building and associated businesses employ such a wide range of workers.”

Employment from new home construction and remodeling has a wide ripple effect. About half the jobs created by building new homes are in construction. They include framers, electricians, plumbers and carpenters. Other jobs are spread over other sectors of the economy, including manufacturing, retail, wholesale and business services.

NAHB analysis of the broad impact of new construction shows that building 1,000 average single-family homes generates:

• 2,970 full-time jobs
• $162 million in wages
• $118 million in business income
• $111 million in taxes and revenue for state, local and federal governments

Similarly, construction of 1,000 rental apartments, including units developed under the Low Income Housing Tax Credit, generates 1,130 jobs while $100 million in remodeling expenditures creates 890 jobs.

Currently, housing comprises about 15.5 percent of GDP but Dietz said the industry still has room to grow.

“Typically, housing represents 17 to 18 percent of the GDP,” he said. “With a growing population and an aging housing stock, NAHB forecasts that single-family construction will increase 22 percent in 2014 to 760,000 units and multifamily production will rise 6 percent to 326,000 units.”

Noting that 2014 should be the first year since 2007 in which total housing starts exceed 1 million homes, Dietz said this expansion will produce jobs. “In April alone, home builders and remodelers added 13,100 jobs,” he said.

NAHB estimates that total housing construction over the next few years should return to just under 1.7 million combined single-family and multifamily starts on an annual basis.


Link - http://www.nahb.org/news_details.aspx?newsID=16814&fromGSA=1
Any expressed market opinion is my own and is not to be taken as financial advice
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herbie
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Shadow
30 Aug 2014, 02:50 PM
I assume that's your way of conceding defeat.
So, for every buck we chuck at housing, we get 2 bucks return.

Seems to me then, that the obvious problem with our economy, is that we obviously aren't chucking enough money at housing?

Hmmm - If we chucked all of our loot at housing everyday for a year, that would mean we'd see 365 times 2 returns yearly would it (? omitting any compounding) - Namely 70,000% plus returns pa? Every year; For ever; Ad infinitum.

How easy is this Economics stuff? Just spend more on our housing more often and our economy can't help but prosper pretty obviously ... :)

PS: Would ya happen ta know the Gaelic word for 'sarcasm' Shady?
Edited by herbie, 30 Aug 2014, 03:55 PM.
A Professional Demographer to an amateur demographer: "negative natural increase will never outweigh the positive net migration"
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skamy
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Veritas
29 Aug 2014, 06:43 PM
If people who make a living building houses and selling those houses to other people who make a living building houses, then you have a multiplier accelerator effect on your hands. The MA effect has Ponzi characteristics.

The MA effect was central to the Irish housing bubble which was very definitely a Ponzi scheme.
There were definitely investors engaging in ponzi type activities at the peak of the market in Ireland. Speculators from banks and other institutional investors, who bought and sold interests in apartment blocks on the belief that prices would rise forever, with no intention at all to live in or rent out these properties. It was pure speculation on capital gains and it worked for a long time.

The scale of overbuilding was huge Veritas, even Sydney at the moment looks like a snail market in comparison. What you have to understand is that so many Irish people were returning from all over the world as the economy pulled itself up from 100s of years of real poverty etc so for a long time there was a huge demand. That demand is still out there and Ireland will recover I just hope to God they improve development controls and introduce measures like more transaction costs to prevent a rerun of the boom cycle. Sadly I am not optimistic, the smell of money is always too good and because they are desperate for a return to better days they will be reluctant to address these issues for fear of destroying confidence.

If we see too much investment in our markets from people seeking capital gains only, then indeed we would be in danger territory.

Perth is a really slow market in comparison and has hardly seen capital growth since 2007, how can you possibly compare the two?


Jimbo
29 Aug 2014, 06:54 PM
I never said that house prices in Warnbro are a Ponzi scheme?

The idea that building houses can build an economy is Ponzi economics however and that is what you are clinging onto.
I apologise. You did not say that, and I should not have made that cheap shot I just got a bit heated sorry :bh:
herbie
30 Aug 2014, 03:39 PM
So, for every buck we chuck at housing, we get 2 bucks return.

Seems to me then, that the obvious problem with our economy, is that we obviously aren't chucking enough money at housing?

Hmmm - If we chucked all of our loot at housing everyday for a year, that would mean we'd see 365 times 2 returns yearly would it (? omitting any compounding) - Namely 70,000% plus returns pa? Every year; For ever; Ad infinitum.

How easy is this Economics stuff? Just spend more on our housing more often and our economy can't help but prosper pretty obviously ... :)

PS: Would ya happen ta know the Gaelic word for 'sarcasm' Shady?
The fact is that home building is a good activity for the over al economy. What drives home building should be supply and demand, when these two loose touch problems arise.

No-one would ever suggest that people build homes without buyers. Australians buy land and then build homes on them, this has been good as it prevents the kind of overbuilding that occurred in other markets. Developers in Ireland would build whole housing estates on spec.

In Sydney we have seen a decade of slow building and that has been a very big negative many small building companies went under and the economy lost that multiplier effect. Now things are improving and we are seeing this multiplier effect return.

You cannot turn it on and off by throwing money at it. During the downturn developers could not sell land for love nor money.
Edited by skamy, 30 Aug 2014, 07:11 PM.
Definition of a doom and gloomer from 1993
The last camp is made up of the doom-and-gloomers. Their slogan is "it's the end of the world as we know it". Right now they are convinced that debt is the evil responsible for all our economic woes and must be eliminated at all cost. Many doom-and-gloomers believe that unprecedented debt levels mean that we are on the precipice of a worse crisis than the Great Depression. The doom-and-gloomers hang on the latest series of negative economic data.
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JanesAddiction
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Shadow
30 Aug 2014, 02:50 PM
I assume that's your way of conceding defeat.
Only a Sith deals in absolutes.
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