Pain au choco-brat

Somebody needs to report to Tim Worstall for training:


Anyone want to take a punt on what the rent is for a croissant stall at LaGuardia? It was actually the section on coffee prices which interested me most in Tim Harford’s The Undercover Economist, in which he pointed out that even in busy London stations coffee sellers don’t make much money because the landowner simply increases the rent. In other words, it’s the landowners via rents who make money in prime locations, not the operators of businesses. I’ve recently begun to realise that is a problem: any economic system where ownership of land generates enormous returns while people working 8-12 hour shifts actually doing something have their rewards capped at a few percent probably isn’t going to last very long. Eventually people who don’t own land will get fed up with those that do and start voting in socialists – such as Jeremy Corbyn, whose base is made up of Millennials who will never be able to afford a house because previous generations, in cahoots with the government, inflated prices and pulled the ladder up after them.

If AOC had acknowledged the problem of enormous rents accruing to landowners at the expense of productive workers, she might have been onto something (although I doubt she could find a solution to a squeaky door let alone a complex problem at the intersection of economics, politics, and liberty). Instead she dived head-first into labour theory of value nonsense, presumably believing if stall vendors at LaGuardia made $15 per hour croissants would be more affordable. But that probably won’t make any difference: people vote for socialists like AOC because they feel the current system is stacked against them. The trouble is they’re probably right, but they don’t know how or why. The challenge for non-socialists is to do what Thatcher did, and give ordinary people a reason to embrace capitalism which works for them. In practice, this means an economy in which an ordinary young couple can afford to buy a house and raise a family without being the offspring of a millionnaire or going to Harvard. Unfortunately, we appear to be heading in the opposite direction which is why, despite the economic idiocy behind AOC’s tweet, we’ll be seeing a lot more of her ilk in future.

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49 thoughts on “Pain au choco-brat

  1. Artificial constraints on supply pushing up prices: i.e. planning permission reform is the most young friendly policy you can pursue.

  2. As its owned by the City of New York those rents are either, to a first order approximation:

    A tax – in which case the poor benefit (in theory)

    A subsidy towards reduced landing fees/operating costs, in which case the rich are being subsidised.

    I’m going with the latter.

    And this shows even further ignorance on her part.

  3. Twas ever thus.

    Most of the economic gains that are produced in the productive economy, eventually find their way into higher land values via buyers bidding up land values, higher and higher with the gain then being transferred from the productive economy and into the extractive FIRE economy. The land value is still subject to cycles with peaks, slumps and recovery phases which always reach a far higher price level than the previous peak and rinse and repeat.

    The land ownership systems and legal protection of an owners rights, land title and banking systems are set up such that they facilitate and support this well established and entrenched system, for this system to change, then these fundamental tenants of land ownership and enclosure of the land, would have to change first, which is highly unlikely, regardless of which political party is in government.

    David Ricardo – in his Theory of Economic Rent first defined this concept, which is based on the location value of land, and the sole benefit that is derived to its owner (rentier) from its location value alone.

    He referred to this as the “economic rent”, as opposed to and not to be confused with the receiving of a rental payment from a tenant to a landlord for a property that has been leased to them, which is a productive exchange ie shelter or facility is being provided to a client for a commercial return. To be classed as “economic rent” the (capital) gain can only have been achieved without any productive effort whatsoever ie effortless, some refer to it as the magic pudding.

    If you look at in a longer scale, blacksmiths could once afford to own or rent a property within the square mile. In the fifties you could most probably purchase a first home in inner or middle ring London, with the father being the only breadwinner.

    Henry George in his seminal Progress & Poverty, best explained how this land monopoly exists and unfolds, and how it is inequitable to those that do not own land and more importantly how to stop it dead, through a land tax system. Progress & Poverty sold more copies than the bible, but his work and his teachings were rubbed out, by those land rentiers with influence that did not want to see change. Winston Churchill often spoke of the inequitable nature of this system as well, but nothing has and in opinion will ever change.

    Homer Hoyt in 100 Years of Land Values in Chicago first defined the land value cycle, which still holds true to this day and is spreading wider and wider around the developed world. I have read most of his work, he used his knowledge in planning and timing the development of land into shopping centres and cinemas in suburban America and made an absolute motza for all those involved.

    Moral of the story, if you can’t beat them join them.

  4. Correction to my comparison above on the number of sales of Progress & Poverty exceeding the Bible, I just rechecked this myself and apparently it didn’t.

    ……………………………………………………………………….

    Soon after its publication, over three million copies of Progress and Poverty were bought, exceeding all other books written in the English language except the Bible during the 1890s. By 1936, it had been translated into thirteen languages and at least six million copies had been sold.[6] It has now been translated into dozens of languages.[7]

    https://en.wikipedia.org/wiki/Progress_and_Poverty

  5. The creation of a land value tax is capitalised into the property value. It is economically equivalent to the government nationalising all land for zero compensation.

    Bardon revealed as a commie. Interesting.

  6. Well deduced Comrade!

    When it comes to my political leanings, I would say that I am the polar opposite of collectivism, and I am one of the few remaining and endangered species formerly known as individualists.

    My note was in response to Tim’s concern that land values are at such a high level and increasing further, that it could polarize the have (older generation) against the have not’s (millennial’s) to such an extent that the social system itself as we know it, could collapse, due to this ever increasing divide and the financial inequality of this situation.

    My view, it’s that it has always been this way, despite the very high levels of wealth that are been continually created, the majority continue to live in relative poverty in comparison. Which is the number one challenge facing the advancement of our society today, that will not be solved and is due to the land based monopoly system, capturing the wealth and creating the inevitable boom and bust cycles that will always prevail.

    Gordon was a moron to say “no more, boom or bust” because the boom and bust cycle is baked in and it is due wholly and solely to the land ownership system of economic rent, taking up all of the gains that are created in the productive economy. And this is the reason why the need for workers to continue working a forty-hour week, in this day and age, looks highly likely as being the only prediction that Keynes will get wrong in his Economic Possibilities for our Grandchildren.

    If anyone is interested in this important subject, this recent short discussion on the economic rent and the omission of land from the classical definition of wealth, being a product of land, labour and capital is well worth the viewing.

    …………………………………………………………………………………………..

    They’re not making it anymore

    Land is a necessity for human existence and remains the original source of all wealth. Yet bankers, economists, and politicians have simplistically lumped land and capital together, so apparently now they mean the same thing. So why, as a society, have we chosen to eliminate land from the economic calculus? The consequences have been far reaching. Host Ross Ashcroft is joined by writers and economists Laurie MacFarlane and Josh Ryan-Collins.

    https://www.youtube.com/watch?v=WL-lJV2S4XI&feature=youtu.be

  7. Surely a landowner is the same as any other business? They can’t price themselves out of the market
    As long as the punters will continue to buy over priced coffee and pastry, the land rents can also be overpriced, but once the punters start to say, “I’m not paying that”, something has to give. A landowner makes nothing if nobody is willing to rent his land
    In a market economy, wages are as low and prices are as high as any business can safely get away with

  8. They can’t price themselves out of the market

    No, they set the rent at what a tenant can pay, i.e. that at which the tenant can still make an acceptable margin. The problem is, if a tenant’s margins increase due to some change or their own efforts, the landlord increases the rent to capture the additional rewards. This means that tenants who have to rent will always have their margins capped by landlords who can capture any windfalls or rewards of any innovation or smart business practices on the part of the tenants. In terms of pure economics there’s not much wrong with this, but if people trying to run a business and provide a service are living on the edge while landowners are sitting pretty, eventually people will start voting for people like Corbyn and AOC.

  9. The cost of the land discussion is a valid one. I would also make the additional point that with an increase in the minimum wage that $7 dollar croissant is going to become even more expensive.

  10. In terms of pure economics there’s not much wrong with this, but if people trying to run a business and provide a service are living on the edge while landowners are sitting pretty, eventually people will start voting for people like Corbyn and AOC.

    I don’t disagree with this in general, but it really has nothing to do with the price of pastries at LaGuardia, a government run entity that awards concessions on the basis of political connections. I suspect that the profits these airport concessionaires make are pretty spectacular. And their political influence makes it difficult for the Port Authority to do things like raising the minimum wage at airports.

    Of course, the AOC/Corbyn solution to the problem you described is to have a Port Authority type entity manage real estate resources. DeBlasio has already talked about how everything would be so much better if the city was allocating all the real estate in NYC. For the good of The People, of course. But that just takes you back to where AOC started, with $10 an hour workers serving $7 croissants to overtaxed peasants.

  11. “Surely a landowner is the same as any other business?”

    There are several comparative advantages that a landowner has, more than say another business that is not based on land ownership and effortless gain.

    To make it easier for me explain, let’s do the comparison between two equal individuals, that both live in an equal and comparable property, that equally benefited from the improved amenity that was created by the cross city rail underpass, improving the connectivity in their equally located properties.

    One of the individuals owns his property, the other rents his property. Both individuals equally enjoy the improved amenity of getting from a to b quicker, both of them as taxpayers have equally contributed to the funding to enable this piece of public infrastructure to be built. So far so good.

    Because of the improved amenity and connectivity along the new and billions of pounds of tax payer funded rail corridor, the value of the properties located in this corridor will increase at a faster rate, than other properties located further away from this corridor, although in time, the increased value adjacent to the corridor will eventually ripple outwards and also increase the land values further away.

    Therefore the individual that owned his property, has received a windfall increase in their net worth, due to this effortless gain in his land value and has therefore received a higher benefit than the individual that is renting his property.

    The windfall gain is still there in the rented property value, but it is the absent landlord, that owns the rented property that takes the gain, that the tenant completely misses out on, even though he equally funded the project, than both the now wealthier homeowner and landlord did.

  12. “The problem is, if a tenant’s margins increase due to some change or their own efforts, the landlord increases the rent to capture the additional rewards.”

    True. The counter to that is competition. If you’re a business that isn’t too dependent on location, it’s hard to squeeze them. Online retailers are already all on cheap industrial estates and if you squeeze them, they’ll move to a cheap industrial estate in the next town.

    I don’t have a lot of sympathy for businesses that make money from a location and then getting most of it taken in rents or rates, because they aren’t making that money, the location is. The Cafe Nero in the ground floor of the building I work in gets most of its traffic from the station and our office. If the station moved their traffic would collapse.

  13. due to this effortless gain in his land value

    And there it is. Pray tell where the capital came from to purchase the land, as opposed to the much smaller amount required to rent it, for example? Did those monies take enough “effort” to acquire to transform into goodmoney, and therefore be exempt from BardonTax?

    Also, is ownership risk priced at 0 for the purposes of BardonTax? Are there any other types of badmoney that took no “effort” for individuals to acquire and are therefore owned by the government?

  14. If you’re a business that isn’t too dependent on location, it’s hard to squeeze them.

    Okay, but where does that leave a small shopkeeper? One of the biggest differences I’ve noticed between France and the UK (even Paris and London) is France has a lot of small, independent shops whereas nowadays Britain is nearly all chains. I’d like to see an economy where people are able to set up a small retail business without being fleeced by landlords.

    I don’t have a lot of sympathy for businesses that make money from a location and then getting most of it taken in rents or rates, because they aren’t making that money, the location is.

    Right, but this applies equally to the landowner.

  15. What sorts of tax policy, regulation (big umbrella that), and cultural factors result in France having more independent shops, you think? Are you undervaluing culture, ie the French consumer’s relatively greater demand for small shops? What about the relative average income levels of France v UK – are they about equal or are the Brits on the whole poorer and therefore more apt to choose cheaper chains?

    I really want to understand people’s concerns and am trying to be less dogmatic in my ideology but to do so I…well, I have a lot of questions. =)

  16. What sorts of tax policy, regulation (big umbrella that), and cultural factors result in France having more independent shops, you think?

    I have no idea, and I expect there are all sorts of factors to explain the difference. But I have anecdotal evidence that independent retailers tend to get fleeced by rent, business rates, and other charges in the UK, and I know property ownership has long been viewed as the sole route to prosperity in the UK (take a look at the housing market). How many people do you know who chose to put capital into property rather than start a business?

  17. @Sam

    If its any consolation, or redemption of sorts for me, over the years I have purchased 13 properties for myself, sold 9, and live in my fully renovated Palacio Bardonici. I have also bought another two properties in the last two years on behalf of younger family relations (“or nominee” contract of sales) and will buy more on behalf of my sons. And am currently holding a significant development opportunity, that I will most probably develop into a large amount of single/aged/living customized, single storey dwellings thermonuclear cash cow, when I get around to it and as something to do in semi-retirement.

    Like I said before, if you cant beat them join them.

  18. Interesting discussion.
    As was pointed out, it’s the location that makes (most of) the profits, but entrepeneurs who are good can capture extra profit in between rent reviews.
    Sometimes traffic changes and landlords get stranded with something of less or little value. Who would have thought, when England and the cotton trade ruled the roost, that towns such as Halifax, Wakefield and Bradford would be anything other than prime property?
    Things change. Out of town shopping centres were the thing and the supermarkets were going to gobble up the world. Now, Tesco’s property assets are as much a millstone as an asset. I can’t remember the last time I did a weekly shop, as all our big shops are done on-line. I’d rather deal with a private sector landlord than the state, that’s for sure.

  19. Tim,

    Interesting. My anecdotal experience in the US is that chains dominate low and middle-income areas, whereas it’s more of a mix in the high-rent retail districts. So who knows.

  20. Moral of the story: Don’t buy croissants at La Guardia. It’s not compulsory FFS.

  21. High-rent US shopping is largely international fashion houses, isn’t it? I remember being in a fifth avenue store selling ties for a thousand dollars. There seem to be certain neighbourhoods of towns (Back Bay in Boston comes to mind) where there are a lot of “independent” shops, even whole small towns (try New Hope on the NJ/Penn border), where the places are full of patchouli kaftans and vegan sandals and everything smells of cedarwood soap. Independent, but still somehow all the same.

  22. Millennials who will never be able to afford a house because previous generations […] inflated prices and pulled the ladder up after them

    Up to a point, Lord Copper. Given the rock bottom interest rates that we’ve been ‘enjoying’, I wonder what proportion of a typical net income is needed to cover a typical mortgage vs a few decades ago? My first house may only have cost £30k and it would now be 10x that, but the mortgage rate was 16%. Certainly all my ‘millennial’ relatives have bought their own accommodation, out of decent, but far from spectacular, salaries.

    Of course, there’s also the issue of saving for a deposit, which requires some amount of deferred gratification – a foreign concept to many millennials.

  23. Up to a point, Lord Copper.

    Up to a point for sure, but you’re not going to convince me low interest rates – which have helped overstretched homeowners meet their payments thus minimising defaults – offset ludicrous houseprice inflation.

    Certainly all my ‘millennial’ relatives have bought their own accommodation, out of decent, but far from spectacular, salaries.

    I’m assuming they got help with the deposit.

    Of course, there’s also the issue of saving for a deposit, which requires some amount of deferred gratification – a foreign concept to many millennials.

    True, but what are they supposed to be saving for? Previous generations could borrow 2-3 times their annual salary to buy a house. That’s approximately what Millennials have to save just for the deposit. It’s just not within their reach, so it’s a bit unfair to blame them for not trying.

  24. When we bought our first house in September 1976, we paid £13,700. We put up 10%. I’d just got out of Uni and was a trainee Chartered Accountant. My wife gave up Uni and got a good job so we could save for the deposit. I think the Woolwich mortgage rate was 12 or 13%. Mortgage was 2x combined salary and we struggled.
    Fast forward to 2016 and my youngest daughter buying a flat (in Peckham! Until I’d looked around I imagined it would be terrible, but no, some rapid gentrifying going on) for £300k. Had to put up £50k. If we hadn’t put something by over the years she’d never have made it. Some of the problem is lack of supply, some is huge demand – who’d have thought that lots of immigrants to London would put up prices? – and some is low interest rates which have been capitalised in higher prices. Me? I’d favour building more and cutting back on immigration, then see if the problem becomes less acute.

  25. I think the Woolwich mortgage rate was 12 or 13%.

    That’s high, but inflation was running along in double figures back then too, eating away at the principal. With inflation at around 2-3%, that £300k is going to have to be paid back in real money, near enough.

  26. No, they set the rent at what a tenant can pay, i.e. that at which the tenant can still make an acceptable margin. The problem is, if a tenant’s margins increase due to some change or their own efforts, the landlord increases the rent to capture the additional rewards.

    So you innovate by changing the business model.
    High street rent too high? So work out how to do mail-order properly, and build your Amazon dispatch centre where you bought the out-of-town land cheaply. High street rents now collapsing.

    Black cabs: see uber.

    Don’t like the price? Don’t pay it. Innovate around it.

  27. High street rent too high? So work out how to do mail-order properly,

    How does that work with a bakery? Or a pub?

  28. “Okay, but where does that leave a small shopkeeper? One of the biggest differences I’ve noticed between France and the UK (even Paris and London) is France has a lot of small, independent shops whereas nowadays Britain is nearly all chains. I’d like to see an economy where people are able to set up a small retail business without being fleeced by landlords.”

    That’s not related to rents. Small shops or chains both pay high rents near stations.

    My guess is that it’s about the Code du Travail.A whole mountain of laws kick in at various numbers of employees (11? 50?) which protect employees. Like if you make 10 people redundant in a company of more than 50 people, you have to produce documents showing that you’ve done your best to retrain or redeploy them. You have to consult with a works council about restructuring and only after this process is complete, can you make people redundant.

    So, you open up a dozen shops. You realise 2 of the shops are not working out and need to close them. You can’t pay people the redundancy. Oh no. You’ve got to meet all these bureaucrats to go over the plan, while you’re paying people a full salary.

    France has chains like Alain Affelou, FNAC and Genevieve Lethu, but they’re well over 40 years old. And I bet they run fine now because they’re big enough to bear the risk of that sort of bullshit killing their business. You also get imports like Aldi and Apple stores in France. Again, Apple can the risk and bureaucracy.

  29. How does that work with a bakery? Or a pub?

    Purchase the insanely expensive property that your pub is on? Explore and eliminate regulatory factors that lead to higher rents? Choose a less expensive location?

    Why are the – let’s say “pro-tenant” – ideals you’ve put forth not being explored, and the – let’s call them “pro-property rights” – people required to defend the morality of owning real property and devise solutions for every business difficulty? Do you support Bardon’s land tax ideas mentioned above? Trying to be open-minded but not seeing a lot of ideas to chew on.

  30. That’s not related to rents.

    I remain unconvinced that the proliferation of small, independent shops in France is unrelated to levels of rent.

    My guess is that it’s about the Code du Travail.A whole mountain of laws kick in at various numbers of employees (11? 50?) which protect employees.

    No, that explains why there are few companies with over 50 employees but lots with just under. I’m talking about small shops with one or two people in.

    So, you open up a dozen shops.

    How many chains like that exist in the UK? There used to be a few regional ones, maybe they still exist, but most I see are the giants. And France has plenty of them.

  31. Explore and eliminate regulatory factors that lead to higher rents?

    That’s one solution, yes.

    Choose a less expensive location?

    You mean close the pub. Who cares, right?

    Do you support Bardon’s land tax ideas mentioned above?

    No, I don’t support land taxes. I don’t have a solution, but what I do know is if landowners want to avoid being clobbered by lunatics like Corbyn or AOC, they’d better think of one.

  32. they’d better think of one

    Stop letting small-minded, envy-driven socialists control the government and especially education? (Too late in the UK?) You paint a depressingly realistic no-win scenario for the kulaks and horders. I know what Korean land owners did when the fine denizens of L.A. wished to reallocate their wealth, but that isn’t a pleasant solution either.

    clobbered by lunatics like…AOC

    Hey, she wanted higher rent for Amazon!

  33. The solution is higher interest rates but that will trash a debt junkie economy.

    It is also not possible because capitalism has fully eaten itself. Capital is of no value any more. It is not needs to create new value. Most new value is created with laptops on kitchen tables. That’s how my employer started. And that simply isn’t capital intensive.

    We are just doing what Japan did 30 years ago. And is still doing.

  34. @Tim Newman on April 2, 2019 at 3:11 pm

    The problem is, if a tenant’s margins increase due to some change or their own efforts, the landlord increases the rent to capture the additional rewards

    How does landlord know? After lease signed they don’t receive P&L and other accounts & financial statements, wage info etc

    AOC – the loon who drove Amazon out of NYC

  35. @Tim Newman on April 2, 2019 at 4:39 pm

    One of the biggest differences I’ve noticed between France and the UK (even Paris and London) is France has a lot of small, independent shops whereas nowadays Britain is nearly all chains.

    That’s because UK economy more advanced and many independent stores decide to use a “free” symbol group brand eg Premier, Budgen, Spar

  36. I remain unconvinced that the proliferation of small, independent shops in France is unrelated to levels of rent.

    Why does a landlord care if he gets an independent cafe rather than Cafe Nero?

  37. Why does a landlord care if he gets an independent cafe rather than Cafe Nero?

    He doesn’t. But a chain and an independent have different cost and financial structures, which in turn determine acceptable margins. I heard somewhere that a lot of chain coffee shops barely make any money. That’s not going to work for an independent.

  38. Previous generations could borrow 2-3 times their annual salary to buy a house. That’s approximately what Millennials have to save just for the deposit.

    In Tottenham or Reigate, maybe. There are other places to live in the UK. You can buy a home in Hartlepool for 2-3x average salary.

  39. According to Zoopla, the average house price in Hartlepool is around £130k. I doubt the average salary is £43k-£65k. So if this doesn’t work for one of the cheapest places in the country, where does it work?

  40. @ Chris – “Of course, there’s also the issue of saving for a deposit, which requires some amount of deferred gratification – a foreign concept to many millennials.”

    I don”t recommend that a young person should save for a deposit and could demonstrate that it is actually an inferior wealth building strategy, yes, there could be a time in the cycle where it does work, but first home owners will rarely understand this and its really all about them getting on to the ladder and on with their lives and they will have all the time in the world to surf the at least two real estate equity creating property booms that are guaranteed to occur.

    So forget about saving and its a poverty strategy, get the maximum LVR, you can get, yes pay the lender mortgage insurance as well (which covers them not you), beg, borrow and steal, use credit cards etc to make up any gap between your maximum LVR and final closing costs.

    The best and most effective wealth building strategy from a property based approach, is to get yourself into as much debt, as early and safely as you can, and never, ever, pay it back. That way you have your trusty inflation worker bees toiling away 24/7, eroding the value of your debt and increasing the value of your land, efficiently increasing your ever increasing equity. From am investment perspective, its even better, as the rental stream is also increasing in value and your investment debt (good debt) is tax efficient. Houses are merely an income producing asset that allows you to hedge against inflation.

    Renting and buying for investment is also a good strategy, best of both worlds and rentvesting is okay too. Having said that the reason I recommend a young person buy a house is that it becomes a forced saving plan and that stage of life, where you are more than likely to squander the reduced outgoings for rent as opposed to a mortgage ie savings, pissing them up against the wall. Once they grow up and gain a bit of sense, it becomes clear that buying their gaff five years ago, was the best move they ever made and they now have the launch pad in place for lift off.

    By the way when I bought my first one, it was a 97% LVR, had mortgage lenders insurance, I got a stamp duty holiday, and borrowed the rest from the n laws and maxed out all of our credit cards. All the blokes that I worked with at the time, were prophesying my doom and shocked that I went for inner ring, when I could have got a far cheaper joint in the mortgage belt where they had mostly bought. Paid the in laws back within the first year as well.

    Compare 100% mortgages
    You could get a mortgage with a 100% LTV or more without any deposit, but you may need a guarantor

    https://www.money.co.uk/mortgages/100-mortgages.htm

  41. @ Sam – “Do you support Bardon’s land tax ideas mentioned above?”

    They are not my land tax ideas and I am now opposed to them, the method that I mentioned was proposed by Henry George and this still advocated by his Georgists followers and yes, we never will know if they had any unintended consequences.

    Until then, buy some land and get someone else to pay the mortgage on it for you.

    https://www.greaterauckland.org.nz/wp-content/uploads/2017/09/Henry-George-Sign.png

  42. I wouldn’t pretend to be an economist, but it strikes me that the high price of land (or property in general) is solely due to the creation of credit. Because few individuals or businesses buy land/property out of their own money. It’s borrowed money. Largely from the banking system. If there wasn’t the credit available to meet the high prices, then the prices wouldn’t be high.
    Essentially you have a system that holds itself up by its own bootstraps. Credit is issued against the security of assets. The assets priced on the availability of credit.

  43. @ Tim – “High street rent too high? So work out how to do mail-order properly, and build your Amazon dispatch centre where you bought the out-of-town land cheaply. High street rents now collapsing.””

    I hate to be the one that breaks it to you but the information age is incredibly bullish for land prices, just look at the new gargantuan Apple headquarters and the effect that it has had in Cupertino.

    As for the Amazon Effect and digitization, they are very bullish for land prices, then there is the Fairwater Effect unfolding now in Sydney due to the two techie goofy battler types, that head up Atlassian and catapulted Sydney land prices into the stratosphere, in buying two adjacent houses from what was the closest thing to an Australian aristocracy the Fairfax dynasty for $70m and $100m and settled both of them in cash! The $100m sale was the fourth biggest sale in the world last year, quite a lot of money for a block of dirt in a continent that has more than its fair share of it.

    Look at the technological advances that have taken place since we split the atom one hundred years ago, yet land prices continue to become more unaffordable for those on the average wage, that must continue to work a 30-40 hour week, that Keynes got wrong, the land does and must take all off societies economic gains. Look around you have they gone up, did they go up in your grandparents or parents time, the land price must increase and unfold in accordance with the laws of Economic Rent, whether we like it or not.

  44. Pcar – How does landlord know? – observation from outside the fishbowl, but looking at my various local shopping malls I reckon they just whack the rents up periodically and businesses are forced to sink or swim. If too many sink, pop ’em down again.

    I suppose they can guess how well a business is doing by observing foot traffic, but that’d be unreliable, and too much like hard work anyway.

    Tim is right that the whole thing is totally unsustainable. As property owners age and die, the proportion of the population that is disgruntled about renting will only increase, and will eventually constitute a majority that can’t be argued with. An intelligent elite would be trying to head things off at the pass, but instead they’re all doing like Bardon and buying their thirteenth house.

    Bardon’s sons will get to enjoy the houses he bought them. And then his grandsons will get to enjoy a peasant’s revolt in the 2050’s. Not that that’s Bardon’s fault, mind you, and I don’t mean any offence. I’m just saying where “I’m all right, Jack” is going to end up if everybody practices it.

    Incidentally, Bardon, this house price cycle: how confident are you in a 100-yr cycle that can only ever have had, I don’t know, say, 300-yrs of data backing it up?

    I recall reading about this one neighbourhood in Amsterdam where they have house prices going back 400-yrs or more, and the funny thing was, although there were periods where the prices (inflation-adjusted) went up more or less continuously for more than a century, there were also periods – sometimes quite brief ones – where they dropped right down to where they started, or even lower.

    Point being, with such long cycles, longer than any human lifespan, how could you ever tell the difference between a permanent upward trend and a long upswing that will eventually be reversed?

  45. “Point being, with such long cycles, longer than any human lifespan, how could you ever tell the difference between a permanent upward trend and a long upswing that will eventually be reversed?””

    I don’t claim to know what will happen tomorrow, nobody does, but I do believe that there are natural rhythms and forces at play that tend to play out and repeat themselves, over the longer term.

    Yes, you are absolutely right and how do we know that we are not standing on the precipice of a rapid and violent unwinding of the longest, biggest and steepest inflationary phase in our economic history?

    David Fischer in The Great Wave: Price Revolutions and the Rhythm of History, studies the longest recorded period of data for the price of consumable in England from 1201 onward, a look at the free preview and the price chart shown on page 4, is definitely worth a look in support of your question.

    He also describes the social upheavals that always take place when our economic systems transition from and inflationary to an equilibrium phase and vice versa. The one thing I do remember from reading this, when it comes to all of the social revolutions and upheavals in history that coincide with these transitions, obese folk do not revolt, neither do emaciated ones, but hungry peasants are the threat, and should always be shot on sight!

    I have discussed this book before on here in this post below:

    http://www.desertsun.co.uk/blog/6539/#comment-403116

    What is of interest is that most of the major cycles and trends that I follow are synchronizing for a top around 2025’ish. They are the business cycle, the Kondratiev cycle, the Great Wave (above) and the IMF warning that for the first time in history that the global house price markets are now becoming synchronized.

    The IMF explain about synchronization of international markets particularly the housing markets whereby both the financialization and the global village has resulted in more closely aligned housing markets, to such an extent that we have never experienced before.

    This is why that I think that this next leg up is going to be bigger than anything we have ever seen before. The caution is that given that it will be a synchronised boom, so then will the resultant slump be synchronized as well for the first time, and there won’t be other countries like China around to buy up, like they were following the GFC.

    So if I were to share my risk averse position with your here and now, openly and honestly, then I would say that the top of the next cycle, could well be the big one. After which we could enter into a very long and dramatic deflationary equilibrium phase, where the value of capital is no longer king and a nuclear winter could be in store for those aloof, fat, pigheaded, indignant, cigar smoking, chortling, rentier lords of the land, that didn’t change their colours quickly enough.

    So before this potential crisis point is reached, it may well be a sell time for me and obviously I would do it sooner rather than later, quite happy to leave something on the table, for the next buyers, than leave it too late and end up with nothing, or worse.

    …………………………………………………………………………………

    Global Financial Stability Report April 2018: A Bumpy Road Ahead

    Another chapter analyzes whether and how house prices move in tandem across countries and major cities around the world—that is, global house price synchronicity. The chapter finds a striking increase in house price synchronization across the countries and cities. It also finds that global financial conditions contribute to this synchronization.

  46. Half the shops in some High Streets are empty. If that’s a way to riches, it defeats me.

    And the malls aren’t better. If they don’t have periodic refits they go downhill fast.

    Long term leases prevent price increases. A willingness to shift prevents gouging too.

  47. I heard somewhere that a lot of chain coffee shops barely make any money. That’s not going to work for an independent.

    True, but they’re independent franchisees. Would they be more or less profitable without the brand, brand products & store format? Franchisee/symbol believes less.

  48. I don’t believe that the comment is negated by the reasons you state. Irrespective of why an hour of labour is only priced at $15 and a Croissant at $7 it is a comment on how value is perceived not an economic evaluation. It is not necessarily socialist nonsense merely that rent seeking can be damaging and mean that values can become distorted.

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