It is not surprising that property rights are the source of true wealth, and that property owners as cultural descendants of the feudal lords of the past have the history of the development of law and economy on their side

from paper: "However, the rental yield component is typically considerably higher and more stable than the dividend yield of equities so that total returns are of comparable magnitude"

my take away was that equities produce a lot of wealth, but squander it by not returning it to shareholders (lack of dividends). look how many tech companies refuse to pay dividends because 'we are a growth company, we are always a start up". i hate stock buy backs, I think it just rewards people exiting the stock.

in short, if you are a property owner, you can garentee cash flows. economy goes up, down, you more less have an income stream. stocks, they will always go out of business. a company that never returns money to share holders in the end is always worthless, but today, that is in vogue.

Putting profits into stock buy backs instead of dividends still returns money to share holders (through the retiring of shares bought back.) It’s generally preferred since it allows shareholders to postpone (perhaps indefinitely) paying tax on the money returned. Good for shareholders but bad for society.

Unless the stock price declines after the buyback....

If you sell enough stock to own the same dollar amount of the company whenever a buyback happens, it should be basically equivalent to a dividend.

I would be curious as to the basis for removing one of the largest components of the economy. There's a lot of money tied up in housing!

Removing housing reduces returns seems like a tautology: if you remove one of the best-returning asset classes, returns are lower.

The basis is that when people say "r >> g" they think "business owners and the stock market" rather than "the house my parents own", and they think about reforms to the business sector rather than reforms to the housing sector.

It seems they would be more right than wrong, though, as business owners indeed also own the majority of US real estate, with about $30 trillion business-owned vs. $19 trillion privately owned:

* Residential real estate market size was $33 trillion in 2018, of which about 80 million units are privately owned and 60 million units are not.

* Commercial real estate market size (Office buildings etc.) was about $15 trillion.

I'm not sure what your point is. Business ownership of real estate is irrelevant. The fundamental problem is the structure of the real estate market, not the competitive environment for business.

Isn't that an unfair comparison? Businesses usually make property more valuable, because businesses provide jobs and people want to live somewhere near where they work. Businesses also congregate in the most expensive areas, because they're the only ones that can afford those prices, but people usually don't buy real estate in the most expensive areas purely as a real estate investment. How many city centres have property that sits empty? So I'm not sure that this is a good comparison.

For one thing you're talking about two different businesses. It's very common for companies to rent the space they're in. Then the commercial tenant is providing the value you're referring to but the landlord is the one who receives the increase in property values.

But even regardless of that, it doesn't change the numbers. The majority of the increase in real estate prices goes to corporations rather than individuals. An explanation of why it happens doesn't change that it does.

But it matters in a comparison like this, because commercial real estate gets used to run businesses. Businesses, especially in high value real estate areas, tend to increase real estate prices even further by providing well-paying jobs and useful services. The comparison is like looking at a fireplace and then saying that it's warmer in the fireplace areas. We're talking about justifying action against businesses here. It matters where the value comes from.

You can remove returns generated by the housing economy and while still providing housing.

Some cities and countries (e.g. Vienna, or the Netherlands) provide public housing through gouvernement and/or not for profit organisations (i.e. with 0% returns), to a large part of the population. These places also have some of the lowest inequalities, which seems to validate the parent's message.

You don't even need public housing for this. The higher rents are the more profitable it is to construct new housing. The issue is currently that we literally prohibit it with zoning rules, then make construction less profitable (and therefore less common) by using property tax as opposed to LVT, then (to a much lesser but still relevant level) make construction more expensive through various regulations and trade licensing rules that increase construction costs.

Make it cheaper and easier to build new housing and you'll see a lot more new housing.

Henry George had that figured out over 100 years ago. I highly recommend Progress and Poverty to anyone seriously interested in political economy.

I'm on your side regarding your implication that the reduced inequality might be helped by public housing. Correlation, however, does not provide validation for a causal implication. Validation should require stronger evidence than correlation.

Also it's strange to not include the Norway, Sweden, Finland in this. Do they have similar programs?

... and also France, where ~17% (4,5 millions) of main residences are "HLM" (habitations à loyers modérés).

The argument is that there is an artificial, government imposed basis to the scarcity of housing in high value areas due to zoning.

So zoning contributes substantially to wealth inequality.

Is that related to an increase in population driving up density and "selectivity" of highly desirable areas? What happens when population growth flattens and starts going down (for example, what is the case for Japan now?)

I don't think they was saying we physically remove all housing.

They were saying that most of the imbalance if from housing, that a lot of people own, not just from owning stocks/bonds/etc...

Isn't the person you're replying to talking about saner use of land, not removing housing entirely..?

Won’t this make housing more affordable and allow people to live a decent life? At least in the Bay Area, even rickety shacks now cost >$1M to buy.

cough cough land value taxes cough cough

> Rognlie, Matthew. 2015. Deciphering the Fall and Rise in the Net Capital Share. Brookings Papers on Economic Activity 46(1): 1–69

The paper briefly mentions it but does not address or refute the point further.

And I'm sure you could remove the wages of the top 0.1% and r>>g would be true again.

The rate at which r is growing compared to g is accelerating. For anyone who works for a living, that should be unsettling.

We’re also (probably) at the tail end of an enormous credit cycle, with rock bottom interest rates, and that means hugely inflated asset prices (and a correspondingly grown wealth gap). After credit cycles end, though, you get deleveraging. Debts get defaulted on, and asset prices fall, both of which hurt the rich far more than those who have no assets and those who are in debt. Of course, deleveraging also coincides with unemployment and a bunch of other issues that harm the less well off.

That didn't seem to happen after the 2008 financial crash - the rich were bailed out by Quantative Easing while the poor lost their homes and had to suffer the taxes and austerity to bail out the rich.

Yep, QE seems to have largely limited the deleveraging in 2008 before it went all the way, and the USG took over a lot of the bad debts and socialized the costs. But the govt would have more limited options this time, since rates are so low already. Also, governments around the world have been doing QE since then, so this would be a world-wide thing. I don't know how it's going to play out, I just have some ideas.

>Of course, deleveraging also coincides with unemployment and a bunch of other issues that harm the less well off.

I don't think it's so much a coincidence, but rather a direct effect of it. Less investment into businesses usually means fewer jobs.

Yep, that's exactly what I meant, coincide just means to occur at the same time. (https://www.merriam-webster.com/dictionary/coincide)

I guess I was caught by the word usage. It seemed to me that you were saying that they correlate rather than have a causal relationship. My bad.

I don't see interest rates going up anytime soon. The fed tried that and a handful of quarters later is reversing course.

We know that debt will grow the economy, but it certainly seems like households are debt-saturated at this point.

I agree, it doesn't seem politically possible with the current government to continue raising rates.

People have been saying Japan has been at the tail end of it for 20+ years.

What makes you so sure the US is at the tail end of it?

I'm not sure, it just seems likely to me. I'm enjoying reading Ray Dalio's Big Debt Crises right now, which covers these cycles.

Can you link to one of these studies? I can't find them.