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If you follow the national housing market you are bound to come across data and opinion generated by Robert Shiller (co-author of the S&P/ Case-Shiller Housing Indices).¬† ¬†In a recent piece for the Financial Times titled The Property Predicament he questions the societal benefit of the dramatic increase in home prices.¬† The theme is one he has based his newest book on ‚Äď Finance and the Good Society. Here is a passage from the FT piece:
‚ÄúNote that in the latest bubble home prices in the US and the UK rose rapidly relative to the cost of renting. It was not a rental boom. It was thus financial in origin, not caused by a rise in the real scarcity value of housing services that people want to consume. It was instead a change in the investment demand for ownership of a claim on a stable flow of rents.¬† Before we can answer what would be the effects of large future home price increases relative to rents, we would have to ask why those increases would be happening. Let us consider why they increased the last time, in the early 2000s. The reasons are basically the same in both the US and the UK.¬† Price increases were related to a loosening of credit standards (continued…)
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