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Source: (consider it)
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Thread: how to create jobs
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no prophet's flag is set so...
Proceed to see sea
# 15560
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Posted
quote:
Originally posted by tclune:
quote:
Originally posted by Mere Nick:
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Originally posted by no prophet:
Was Jesus a capitalist? Seemed he had a different idea. Notable is that he gave away the loaves and fishes and didn't sell them.
Capitalists buy me lunch fairly often.
Yeah, but Jesus took the bread and fish from a small boy and redistributed it to others. On second thought, that does sound rather like a capitalist...
--Tom Clune
You're on to something there. It does seem that the Christian myth is about getting something for nothing though.
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Out of this nettle, danger, we pluck this flower, safety.
\_(ツ)_/
Posts: 11498 | From: Treaty 6 territory in the nonexistant Province of Buffalo, Canada ↄ⃝' | Registered: Mar 2010
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RuthW
liberal "peace first" hankie squeezer
# 13
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Posted
quote:
Originally posted by ken:
In the long run renting is always going to be more expensive than buying because the landlord wants a profit.
In the context of all of someone's financial affairs, this isn't always the case. If you can make more money investing in something other than real estate, for some it makes more sense to rent. Given what I could afford to buy -- a one-bedroom condo in an iffy part of town, which is a pretty crappy investment, given the location, the inevitable increases in homeowner association dues, the fact that the payment would be higher than my rent, and the traditional lack of demand for one-bedroom condos -- I'll come out ahead in the long run by investing elsewhere. I crunched the numbers again and again, and even when the housing market fell, it was still true. I ran it all past a professional money manager, and he said someone in my position should only buy a home if they are really attached to the idea of home ownership, but that financially it does not make sense.
Posts: 24453 | From: La La Land | Registered: Apr 2001
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Ender's Shadow
Shipmate
# 2272
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Posted
quote:
Originally posted by ken:
In the long run renting is always going to be more expensive than buying because the landlord wants a profit.
Indeed - and a landlord must make a profit on you, a responsible member of the community, in order to justify his taking a risk on anyone in the community. In practice landlords do SOMETIMES get messed about with. Given this happens, they make a profit to balance out these losses with profits elsewhere. This is why profits are inevitable in capitalism - they are the risk premium for investing in something other than a 100% surety.
Of course the UK housing market has been totally pathological over the past 40 years because of the long term inflation of house prices; this creates a different set of issues...
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Test everything. Hold on to the good.
Please don't refer to me as 'Ender' - the whole point of Ender's Shadow is that he isn't Ender.
Posts: 5018 | From: Manchester, England | Registered: Feb 2002
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mousethief
Ship's Thieving Rodent
# 953
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Posted
But RuthW, the thing about renting is, the rents go up. Once you lock in your mortgage, it stays the same. If you're in a place 10 years your mortgage is going to be a hell of a lot less than someone else is paying for rent for the same space. Even if you aren't gaining any investment advantage at all -- if you move and take nothing back out -- you're still ahead.
But only if you stay there for a sufficient time, of course. If you're the type to move around a lot, this particular advantage is lost.
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This is the last sig I'll ever write for you...
Posts: 63536 | From: Washington | Registered: Jul 2001
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ken
Ship's Roundhead
# 2460
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Posted
Mortgages don't lock in in Britain. Fort us a "fixed rate" mortgage is one where the interest rate is reviewed less frequently than once a year. Usually after two or three years. Almost never more than five.
But anyway, in general and inthe long term commerical rents (i.e. not someone letting out a room in their own house to help pay their bills or while they are away for a few months) will ineveitable be higher than rents.
A house is for sale at a particular price. Person A wants to buy it to live in it. Person B wants to buy it to rent out. If B gets it, A still has to live somewhere so rents the house. But B has to repay the mortgage and make a profit, so the rent *has* to be higher than the mortgage. (assuming they both have access to the same mortgage rates, which is broadly true in England)
[ 13. December 2012, 18:28: Message edited by: ken ]
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Ken
L’amor che move il sole e l’altre stelle.
Posts: 39579 | From: London | Registered: Mar 2002
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mousethief
Ship's Thieving Rodent
# 953
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Posted
The interest rates aren't the issue. It's the cost of living. Rents will go up, just as the cost of groceries or whatever. The principal payment of a mortgage, at the very least, will not. The interest rate will fluctuate. They do not go up and up indefinitely like grocery prices or rent.
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This is the last sig I'll ever write for you...
Posts: 63536 | From: Washington | Registered: Jul 2001
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Mere Nick
Shipmate
# 11827
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Posted
quote:
Originally posted by tclune:
quote:
Originally posted by Mere Nick:
quote:
Originally posted by no prophet:
Was Jesus a capitalist? Seemed he had a different idea. Notable is that he gave away the loaves and fishes and didn't sell them.
Capitalists buy me lunch fairly often.
Yeah, but Jesus took the bread and fish from a small boy and redistributed it to others. On second thought, that does sound rather like a capitalist...
--Tom Clune
He wouldn't have taken it from the boy against his will. It ain't like Jesus was a Democrat or some such since he was without sin, and all.
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"Well that's it, boys. I've been redeemed. The preacher's done warshed away all my sins and transgressions. It's the straight and narrow from here on out, and heaven everlasting's my reward."
Delmar O'Donnell
Posts: 2797 | From: West Carolina | Registered: Sep 2006
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Mere Nick
Shipmate
# 11827
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Posted
quote:
Originally posted by ken:
Mortgages don't lock in in Britain. Fort us a "fixed rate" mortgage is one where the interest rate is reviewed less frequently than once a year. Usually after two or three years. Almost never more than five.
At last, the REAL reason pilgrims came to America.
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"Well that's it, boys. I've been redeemed. The preacher's done warshed away all my sins and transgressions. It's the straight and narrow from here on out, and heaven everlasting's my reward."
Delmar O'Donnell
Posts: 2797 | From: West Carolina | Registered: Sep 2006
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Ender's Shadow
Shipmate
# 2272
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Posted
quote:
Originally posted by ken:
Mortgages don't lock in in Britain. Fort us a "fixed rate" mortgage is one where the interest rate is reviewed less frequently than once a year. Usually after two or three years. Almost never more than five.
But anyway, in general and inthe long term commerical rents (i.e. not someone letting out a room in their own house to help pay their bills or while they are away for a few months) will ineveitable be higher than rents.
A house is for sale at a particular price. Person A wants to buy it to live in it. Person B wants to buy it to rent out. If B gets it, A still has to live somewhere so rents the house. But B has to repay the mortgage and make a profit, so the rent *has* to be higher than the mortgage. (assuming they both have access to the same mortgage rates, which is broadly true in England)
An oversimplification because you are assuming that everyone is in a position to be a homeowner. Once you remove that assumption, it rapidly gets a lot more complicated. Given that some people are forced to rent, then the rental market is a function of what they are prepared to pay, which may well be significantly above the cost of a mortgage plus reasonable profits, because potential landlords have been deterred by talk of rent controls. Therefore someone buying a house and making available to person C - presently being overcharged for his rental premises - is a positive development, even if person A doesn't get the house.
Similarly, if buy to rent becomes massively popular because of a fear of inflation, then the rents chargeable will be competed down as landlords accept less than the full cost of the mortgage (perhaps because they bought a few years earlier before a spurt in house prices) because they prefer the prospect of capital gains because of house price inflation to the losses they fear in other investments.
So Ken, whilst your model is correct IF the housing market is fully liquid and working freely, given that these are 'heroic' assumptions in the present state of the UK housing market, it's dangerously simplistic to construct policy recommendations on the basis that they are correct. These may or may not be significant factors, but the destruction of the private rented sector in the UK between 1945 and 1985 as a result of rent controls left those seeking rented accommodation often facing high rents for 'temporary' contracts which were designed to circumvent rent controls. Whilst we've probably gone a bit too far the other way now, these issues should at least discourage simplistic solutions...
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Test everything. Hold on to the good.
Please don't refer to me as 'Ender' - the whole point of Ender's Shadow is that he isn't Ender.
Posts: 5018 | From: Manchester, England | Registered: Feb 2002
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RuthW
liberal "peace first" hankie squeezer
# 13
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Posted
quote:
Originally posted by mousethief:
But RuthW, the thing about renting is, the rents go up. Once you lock in your mortgage, it stays the same. If you're in a place 10 years your mortgage is going to be a hell of a lot less than someone else is paying for rent for the same space.
The housing market where I live peaked in 2005, and I promise you people who bought condos in my neighborhood that year will in 2015 wish they'd stuck with renting. And their mortgages are way higher than my rent.
You have to look at all of an individual's financial affairs. The total costs of renting are for me less than the total costs of ownership, even over the course of decades. Factor in property taxes, increased utility payments, maintenance, homeowners association dues -- all of which do go up -- as well as my extremely reasonable rent and how the market for one-bedroom condos where I live has fared as opposed to non-real estate investments, and buying makes no sense for me, even in today's market.
Well, unless I want to live in a high-crime neighborhood, which I don't.
Posts: 24453 | From: La La Land | Registered: Apr 2001
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no prophet's flag is set so...
Proceed to see sea
# 15560
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Posted
We went through a market deflation for housing where I live. Things went down about 20-30% in the 1980s. The prices slowly recovered to par, and then increased about 350% since 2000, with a few mild downturns of up to 10%. If you have time to wait, the prices on housing always recover.
It also has to do with what you're comfortable with and your conception of a monetary loss. If you don't sell, the going price on your property means nothing. It only is realized and meaningful as a loss when you sell. So don't sell when the market price is low. Which is why I did not sell my stocks when the market went down a few years ago in the global meltdown and my paper losses exceeded 30%. I've had paper losses of this magnitude 3 times now, in the 1980s and at Y2K. They are up 8% from the pre-loss levels. So the losses are meaningless. Likewise, so will the housing prices be, even if in 2015 as you suggest they will be still down. How about in 2020 or 2025? Maybe up. No one knows. But the long term tend is up. The key is to buy into the market, whether housing or stocks, when the prices are low.
On the real estate side, I did sell a building I speculated on with a partner, and we realized a nice tidy profit, but I wish we'd waited longer b/c the market kept going up and we'd have made 3 times as much. C'est la vie (that's life)
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Out of this nettle, danger, we pluck this flower, safety.
\_(ツ)_/
Posts: 11498 | From: Treaty 6 territory in the nonexistant Province of Buffalo, Canada ↄ⃝' | Registered: Mar 2010
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Sober Preacher's Kid
Presbymethegationalist
# 12699
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Posted
You also have to look at what is available to you for housing stock. Most owner-occupied homes in Canada and the US are single-family detached dwellings, built for a family of four. Three or four bedrooms and a garage. For a single person that is far, far too much; I could not afford the mortgage payment. For in single person in both countries the choice is often between a condo or an apartment. You have to have a downpayment (at least 5% in Canada) and afford both the mortgage payment and the condo fees.
As Ruth said the purchase price stays the same, in Canada as in Britain the interest rate is fixed for six months to five years (you can also get a floating rate, which is on average cheaper) while the time to pay off the entire mortgage debt is 25 years. Depreciation (furnace costs, general repair), heating and utilities all fluctuate and rise with inflation.
In Canada at least I can rent an apartment which includes heat and hydro (electricity) and water.
The much more relevant question is which housing market segment you are in, for single or family accommodation.
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NDP Federal Convention Ottawa 2018: A random assortment of Prots and Trots.
Posts: 7646 | From: Peterborough, Upper Canada | Registered: Jun 2007
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Mere Nick
Shipmate
# 11827
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Posted
Is there a cap on those mortgages in the UK and Canada? It seems that if rates go up that the two countries could have their own bit of a problem like we had here with adjustable rate mortgages.
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"Well that's it, boys. I've been redeemed. The preacher's done warshed away all my sins and transgressions. It's the straight and narrow from here on out, and heaven everlasting's my reward."
Delmar O'Donnell
Posts: 2797 | From: West Carolina | Registered: Sep 2006
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ken
Ship's Roundhead
# 2460
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Posted
quote:
Originally posted by Mere Nick:
Is there a cap on those mortgages in the UK and Canada? It seems that if rates go up that the two countries could have their own bit of a problem like we had here with adjustable rate mortgages.
No. Twice in my adult lifetime the mortgage rate has briefly gone over 15% which caused all sorts of problems.
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Ken
L’amor che move il sole e l’altre stelle.
Posts: 39579 | From: London | Registered: Mar 2002
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Sober Preacher's Kid
Presbymethegationalist
# 12699
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Posted
In Canada and the UK, the term for which the interest rate is fixed is less than the amortization.
When you buy for the first time, most buyers take a 5-year fixed term to secure their payments. By the time their mortgage comes up for renewal, they have paid off enough principal to absorb any interest rate increases.
When interest rates spiked in the early 1980's to over 15%, the default rate reached a record of 1.7%. Between Canadian banks prudent underwriting and Canadian homeowners' desire to keep their homes and pay their mortgage at all costs, it was an avoided problem.
A bank manager I know who worked during that time said that friends and family were the saving grace of Canada, helping out distressed relatives. If that didn't work, the standard line was to gently suggest that perhaps renting might be easier for the homeowner and they should sell and cut their losses. Most people saw the light and that the bank manager wasn't trying to be cruel. Banks don't want to foreclose/exercise power of sale up here, they're just not set up to do it on a large scale.
Mortgages are recourse in Canada, even in Alberta if the CMHC is used (default insurance for the lender). Jingle mail is illegal and just isn't done.
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NDP Federal Convention Ottawa 2018: A random assortment of Prots and Trots.
Posts: 7646 | From: Peterborough, Upper Canada | Registered: Jun 2007
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Mere Nick
Shipmate
# 11827
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Posted
quote:
Originally posted by Sober Preacher's Kid:
In Canada and the UK, the term for which the interest rate is fixed is less than the amortization.
When you buy for the first time, most buyers take a 5-year fixed term to secure their payments. By the time their mortgage comes up for renewal, they have paid off enough principal to absorb any interest rate increases.
Really? In five years we will have paid off a touch under 10% of our original loan balance. If our rate went up to 15% our payment would more than double. But then, if I had a mortgage that adjusts in five years paying everything I could becomes something to consider.
quote:
When interest rates spiked in the early 1980's to over 15%, the default rate reached a record of 1.7%. Between Canadian banks prudent underwriting and Canadian homeowners' desire to keep their homes and pay their mortgage at all costs, it was an avoided problem.
1.7%. That all? Impressive. It is unimaginable that it would be something other than a complete and total disaster here.
quote:
A bank manager I know who worked during that time said that friends and family were the saving grace of Canada, helping out distressed relatives. If that didn't work, the standard line was to gently suggest that perhaps renting might be easier for the homeowner and they should sell and cut their losses. Most people saw the light and that the bank manager wasn't trying to be cruel. Banks don't want to foreclose/exercise power of sale up here, they're just not set up to do it on a large scale.
When the bubble burst here it was hard to sell because so many people were trying to sell, houses were underwater and it was very difficult to get a loan. What you describe is pretty much how it normally is here, but like in that old Simply Red tune, money was too tight to mention when it all burst.
quote:
Mortgages are recourse in Canada, even in Alberta if the CMHC is used (default insurance for the lender). Jingle mail is illegal and just isn't done.
What is done, then, if the folks in Canada ever find themselves in a situation like we were in?
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"Well that's it, boys. I've been redeemed. The preacher's done warshed away all my sins and transgressions. It's the straight and narrow from here on out, and heaven everlasting's my reward."
Delmar O'Donnell
Posts: 2797 | From: West Carolina | Registered: Sep 2006
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no prophet's flag is set so...
Proceed to see sea
# 15560
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Posted
No quite sure when, but they decided that mortgaes could be up to 40 years in length in Canada. This meant that people could amortize the debt over a longer period of time and essentially never totally pay it off. They just stopped allowing that the budget before the one they may or may not have finished voting on (another story, the Conservative jammed every bit of legislation they could into the budget bill, something like 802 laws. The bastards.). They wanted to avoid the fraud bank lending crap fiasco of the USA.
I recall having a mortgage at 15.75% in 1987. Really really hard. We walked everywhere and took extra work. Ate a lot of lentils and liver -- not together, oatmeal, and macaroni with ketchup. Peanut butter and jam. Mattress on the floor and sort clothes in cardboard boxes. I lucked out by getting the right professional training and going into business at the follow-up recession in the early 1990s. There are lots of us who are totally debt adverse from that period.
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Out of this nettle, danger, we pluck this flower, safety.
\_(ツ)_/
Posts: 11498 | From: Treaty 6 territory in the nonexistant Province of Buffalo, Canada ↄ⃝' | Registered: Mar 2010
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Sober Preacher's Kid
Presbymethegationalist
# 12699
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Posted
It's never happened, so I can't say. It happened during the Depression but the mortgage market has changed radically since that time.
Statistics show that default risk is historically almost exclusively concentrated in mortgages with greater than 80% loan to value in Canada. Those people have to purchase default insurance for the lender from Canada Mortgage & Housing Corporation. If you default, CMHC comes after you for the residual. It's been that way since the 1960's.
Off the top of my head, if Canada ever had a US style default crisis the Government of Canada would absorb the losses through CMHC (that's the purpose of the program and has been for decades) and for political purposes, conveniently forget to collect the debt owed to CMHC from defaulted former homeowners. But that's a decision for the Prime Minister and the Minister of Finance.
The real point is that Canadian banks never relaxed their underwriting rules anywhere near as bad as the US did. It happened a little bit, but then the Minister of Finance said the party was over (he's supposed to do that, he's the King of Banks). The root of it is that Canadian banks are all run by CEO's who started off as branch managers if not tellers. They know in their bones to know their customer, not be stupid with the bank's money and to avoid excessive complication and to follow the rules. I know of a youtube clip of the Toronto-Dominion's President saying his policy is that he will not sell a financial product he couldn't sell to his mother-in-law. It's worth more than all the regulators in Canada for a bank CEO to think that.
These men are the Princes of Capitalism here and have reached the pinnacle of power, influence and personal gain in Canadian business. That breeds a certain respect for things that work and for the system.
The usual rules are no more than 30% of your pretax income must be consumed by your mortgage, and all your debt payments cannot total more than 40% of your pretax income.
There are only five banks worth paying attention to in Canada, they all have a conservative group-think. The credit unions have the same conservative group-think. It's an old saw that Canada's bank are based on Scottish branch-banking; their practices have little to do with New York and far more to do with London and Edinburgh.
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NDP Federal Convention Ottawa 2018: A random assortment of Prots and Trots.
Posts: 7646 | From: Peterborough, Upper Canada | Registered: Jun 2007
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Russ
Old salt
# 120
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Posted
Seems to me that there three aspects of creating jobs.
One is to do with growing the economy generally, and we've seen that managing the banking system is part of that.
One is to do with making labour-intensive methods and products and services cheaper relative to less-labour intensive methods, products and services.
One is to do with sharing the available work - how do you make it worthwhile to employ four people for thirty hours a week rather than three people for a forty-hour week.
Pity that most people can't seem to see beyond the first...
Best wishes,
Russ
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Wish everyone well; the enemy is not people, the enemy is wrong ideas
Posts: 3169 | From: rural Ireland | Registered: May 2001
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Ender's Shadow
Shipmate
# 2272
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Posted
quote:
Originally posted by Russ:
Seems to me that there three aspects of creating jobs.
One is to do with growing the economy generally, and we've seen that managing the banking system is part of that.
One is to do with making labour-intensive methods and products and services cheaper relative to less-labour intensive methods, products and services.
One is to do with sharing the available work - how do you make it worthwhile to employ four people for thirty hours a week rather than three people for a forty-hour week.
Pity that most people can't seem to see beyond the first...
Best wishes,
Russ
May I introduce you to the lump of labour fallacy which challenges your assumption that 'the work should be shared around'. It's a complex area, but this insight is one that needs to be taken on board; certainly the extraordinary growth of employment in the UK without a matching decline in unemployment over the past 20 years suggests there is more truth in it than the layman may want to recognise.
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Test everything. Hold on to the good.
Please don't refer to me as 'Ender' - the whole point of Ender's Shadow is that he isn't Ender.
Posts: 5018 | From: Manchester, England | Registered: Feb 2002
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cliffdweller
Shipmate
# 13338
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Posted
quote:
Originally posted by Ender's Shadow:
quote:
Originally posted by Russ:
Seems to me that there three aspects of creating jobs.
One is to do with growing the economy generally, and we've seen that managing the banking system is part of that.
One is to do with making labour-intensive methods and products and services cheaper relative to less-labour intensive methods, products and services.
One is to do with sharing the available work - how do you make it worthwhile to employ four people for thirty hours a week rather than three people for a forty-hour week.
Pity that most people can't seem to see beyond the first...
Best wishes,
Russ
May I introduce you to the lump of labour fallacy which challenges your assumption that 'the work should be shared around'. It's a complex area, but this insight is one that needs to be taken on board; certainly the extraordinary growth of employment in the UK without a matching decline in unemployment over the past 20 years suggests there is more truth in it than the layman may want to recognise.
It might be appropriate as a short term strategy. During the great depression, my grandfather worked for Ma Bell. The company decided to put all workers at 1/2 time rather than to go thru massive layoffs in a time of 25% unemployment. It was probably a kind micro-response to a difficult situation. But it wasn't a long-term strategy for growth and full employment.
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"Here is the world. Beautiful and terrible things will happen. Don't be afraid." -Frederick Buechner
Posts: 11242 | From: a small canyon overlooking the city | Registered: Jan 2008
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