It turns out that the price of housing will go up in the future because of various reasons (primarily migration), but that information is available today. So what does the price time machine do? It transports future prices in the present and oh boy are those prices unbelievably high. The speculators are essentially whistleblowers. They are saying that the emperor has no clothes and promptly get burned on the stake.
Let's assume the opposite, that speculation itself was the problem, and not an external factor that is only brought to light. It would imply that the market price is exceeding the "true price" of the underlying asset and therefore the speculator will have a hard time selling his asset, unless another speculator buys the asset in an infinite loop. However, it doesn't change the fundamental problem, because at some point someone has to take the "true price" - market price loss because they are massively overpaying and cannot find a greater fool.
If you thought the latter was the case then you could just decide against buying a house because it is overpriced. Of course the problem is that no long lasting crash has occurred, even 2008 wasn't bad enough to keep house prices on a downward trend.
Your idea of a ‘true’ price is silly and part of the reason prices may go up in future is indeed the presence of ever more speculators. As they drive prices up, people end up paying more for smaller properties, stretching out their debt load just a little further, and raising the whole market. There is no ‘True’ price.
Speculation helps create a liquid market and stabilize prices.
I'm afraid there's no evidence whatsoever that makers sell at lower prices than speculators. Everyone sells for as much as possible. There's nothing magic about speculators that enable them to get higher prices.
> And they want to buy at lower price before other people can buy at that lower price.
Every buyer tries to do that.
> They don't contribute anything.
Yes, they do. They provide liquidity, and reduce volatility. For example, the only reason a seller sells to a speculator is if the speculator offers to sell at a higher price than others. The only reason a buyer buys from a speculator is the speculator is offering it at a lower price than others.
There is no magic "speculator market" that operates under different rules and different prices.
> For example, the only reason a seller sells to a speculator is if the speculator offers to sell at a higher price than others.
Yeah, it's not magic.
If there was not speculator in the middle, buyer would look for another seller, who probably could have lower price. And that seller could sell at still higher price, because he doesn't have to pay speculator for finding him a buyer. A little more work for seller and buyer, but because speculator makes this work, doesn't negate "just extracting value from being in the middle".
It doesn't strike me that speculation has led to stable prices here.
Excuse me?! Has the author actually done any research into the real estate markets of the big German cities or is he just making this stuff up?
Germany is not safe from real-estate speculation, I can guarantee you that, otherwise 80sqm flats in Munich wouldn't have reached 1.1 Million Euros[1].
[1]https://www.t-online.de/finanzen/immobilien-wohnen/immobilie...
We started thinking about buying when we moved to the Nuremberg area in 2012, and started our serious house hunt in 2014. It took a full year before we managed to get an offer accepted, and we were offering full asking price, because we had to wait a few days to get mortgage approvals instead of having 300k-500k EUR in cash. We ended up with a mid-50s row house that could use new bathrooms and windows in Nuremberg's largest neighboring city/suburb, only because the seller wanted a buyer who she thought would actually live in it themselves... and are keenly aware of our good fortune. We would have to pay about 60-70% more than we did just 5 years ago to get the same thing in livable condition in this location now.
"Most important, in a few places the rate of home ownership is low and no one bats an eyelid. It is just 50% in Germany, which has a rental sector that encourages long-term tenancies and provides clear and enforceable rights for renters. With ample supply and few tax breaks or subsidies for owner-occupiers, home ownership is far less alluring and the political clout of nimbys is muted. Despite strong recent growth in some cities, Germany’s real house prices are, on average, no higher than they were in 1980."
Nowhere does the article say that speculators are the cause of high prices. Speculators are the result of a rapidly changing market, not the cause.
Speculators make money off of prices deviating from the norm (i.e. volatility) and every time they make money off of a price difference, it pushes that price back to the norm. I.e. it decreases volatility.
The fact that speculators are attracted to volatility is an effect of volatility, not a cause.
Shorting a bubble moderates its price rise.
Speculators are part of the market, not observers, and they absolutely contribute to rising prices, not just price discovery, because they add demand.
Speculators buy and sell, in equal measure. That's what makes them speculators. It's a net zero.
If they bought and held, they'd be investors.
They also hold what are limited resources for a non-zero amount of time, reducing supply in aggregate. More speculators, more supply constraint.
This is not some sort of idealised marketplace where people can dip in and out without any effect.
> This is not some sort of idealised marketplace where people can dip in and out without any effect.
You're right. Speculators work to decrease the peak of a bubble and increase the value of a dip.
The misapprehension is thinking the effect is only one way.
In the housing market? LOL.
> Speculators work to decrease the peak of a bubble and increase the value of a dip.
Except that's nonsense, they increase the demand on an already massively in-demand resource, accelerating price rises.
Your ideas fly in the face of observable reality.
This feels a little ad-hominem. I criticised the argument laid out in the article. Do you agree with the point made in the article? If so, why?
* An increase in the size of urban areas would increase GDP by 4% * Anything which blocks this growth is bad * Home ownership blocks this increase * Therefore, home ownership is bad
The implicit premise is that anything which increases GDP is good. Is it? An obvious counterexample is around environmental regulation. We could almost certainly bump GDP in the short-term by deregulating, but would suffer the consequences a few decades down the line.
I really like the economist and they make their bias clear, but I am a little frustrated with the rhetoric that ever growing GDP is an ethical imperative.