Stabilizing the Housing Market
The housing market, like most markets, depends on transaction volume (purchases) in order to establish and support asset prices. This market pricing is used to establish value and higher volumes produce the more reliable, sustainable pricing.
Therefore, if housing stability is a primary economic objective, policy-makers must understand how prices are determined within the housing markets, (currently there are significant flaws, but this is a topic in itself) and find ways to maintain solid purchase volumes at these levels. There are significant challenges here, but highly achievable.
Assuming the two aforementioned obstacles can be achieved, the last hurdle is to make sure that the transactional volume is sustainable and balanced and not artificial or deceptively induced. This shifts the focus to method of financing the housing purchases.
Basically, there are 3 financing methods by which home-ownership can be acquired, only one of which is economically viable. Unfortunately, the current method of choice, debt, is not an economically viable one. Below are the 3 methods with how that capital is created.
- Income: derived from a citizens ability to market their skills and/or knowledge (Labor) or from savings or investment from past labor efforts.
- Debt: derived from citizens’ ability to borrow against future income or earnings
- Gifts, Grants, and/or Concessions: derived from citizens relationship with gifting/granting entity
Traditionally, home-buyers have used all three of the aforementioned funding methods to some degree (though earlier in our history citizens relied mostly on savings and income, (method 1), to initialize and fund the process). Yet more recently, debt (method 2) has played an increasing part in the home-buying process. It is very important to understand that debt is nothing more than leveraging of a person’s future income. Or, in other words, income that has not materialized just yet and/or may not ever materialize.
There in-lies the huge potentially destructive risk. When citizens are given the luxury to pre-spend income that they haven’t earned, or worse, may never earn, then the potential for wide-spread abuses and bankruptcy is great. If the future labor markets contract, then a potential economic catastrophe is at hand. As such, a major portion of the risk associated within the debt markets are directly tiered to dynamics in the labor market
Continue to “Increase Citizen Wealth-Fare by Providing Tax-Incentive Plans and Accounts”
