Musings on housing and financing

 Always startles me to realize how much of the American economy is based on housing. And thereby how much places that don't build housing are knee-capping themselves.

Housing is real estate, finance, construction, banking, furnishings, decor. Any new household has to replace all the things they were sharing at their old household. Kids kind of the same way - all their things. And then all the 'personal services' for everyone. 

Partially it's population growth, but household formation is a multiplier effect on that. But one that relies on the availability of (affordable) housing. When parents start doubling up with their parents, something is going wrong. A certain amount of 'boomerang' can be expected; children saving for a house downpayment being the most innocent. 

20% down on $250k would be $50k. (Who the heck has $50k sitting in a bank account?). If I'm making $50/hour, thats $100k/year. Bookings never match that, so it's more like $81k/year. Knock of 25% of that for taxes, 54k net. My rent runs $1600, about 19k a year (35% of my net income, 24% of the gross. A central city location costs more, but keeps my transport costs low, as I can convert most of my trips into walk/bike trips). Regardless, to get to a $50k downpayment, that would be $5k a year for 10 years or 10k for 5 years. If I want a $500k house, those times double: $5k for 20 years, $10k for 10 years. 

But 'boomeranging' home for a year would be $19k in rent. Assuming extreme frugality, putting away $30k in a year still not possible. Say $15k is (out of $51k disposible). Put away $6k, boomerang for $19k, save $15k...not enough. So have to start with $16k in the bank. 

Regardless, start with a bunch of money in the bank. Most folks worse off, simply because of student debt. Assumes that eats 10% of 'disposible' income. Knocks another $5k off income. 

Design approval is state control of the market. And in the service of a very narrow goal -- the neighbors aesthetic preferences. Development review panels in Europe are recurring, a beauty project between developers to provide the best outcome for a given price. Design review panels in the US are like classroom architectural critiques--architect favor them because they are familiar, and hence comfortable. They don't give a shit whether something gets built or not--no skin off their nose if housing doesn't get built because their standards were too high. In a way, it's an adverserial process in America, like a courtroom inquiry. 

Most economic impact statements are such bullshit. Assuming that places that lease on airport couldnt lease elsewhere, or that the economic impact wouldn't be the same. As if the airport caused to be what would not otherwise be. Hokum. As much a psuedo-science as parking minima. And administration--like counting the cost of doing business as a benefit of doing business. Just adding up all the flows of money that pass through the airport and pretending the airport caused them.

The point of economic impact isn't to make reasonable assessments. It's to build a big "Benefits" number for benefit-cost ratio analysis. It's like the government sucked up the most 'modern' practices from 1970's business schools and institutionalized them. 

But a job is not a job. Some jobs are better from an economic impact standpoint. Higher wage jobs are generally better, because the money recirculates more through the economy, downward. (Why this matters, I do not know). Same for industries. I guess the longer the chain of purchases, the greater the impact. Abe buying from Bill for $5 inferior to Abe buying from Bill buying from Charlie and Damien is a $5 flow vs. a $10 flow. But I suppose it's no a direct transfer--at each step, each actor takes a slice of the pie. But it's not like Bill isn't going to spend that $5 anyway, someplace else--it's not like the money disappears. Hmm. I guess the only time money disappears is when banks do--then the 'fractional reserve multipler' vanishes. If a bank is destroyed, a very large amount of money vanishes. Money is always being destroyed, as people fail to repay loans. The trouble isn't even when all the loans aren't repaid. The crisis doesn't come until the bank run, when depositor try to get their money out of the bank, and there isn't any. 

Clearly, when a bank is 'broke', and can't deliver on withdrawals, it's done. All the equity-holders are wiped out, and the Fed pays the depositors. Question becomes -- what happens to the banks other debtees? Many people like to say "Oh, all deposits are loans, so you should treat them all the same". But I expect banks avoid some of that by just making deposits at other banks. Ah, the great fiction of finance--it's all a pyramid of debt created by fractional reserve banking. In a way, modern finance very like insurance. It only works because the market is 'deep' enough, with enough participants, for the law of averages to work out, and risks to be born. There are those among us that say that bearing risk is the role of equity, not of finance.

'Quantity of money' economic analysis seems surreal to me, when it's clearly the speed of money that matters. Maybe back in the day it mattered, because there was a lot of money just sitting (in the form of gold bars) in safes and vaults. But after the invention of fractional reserve banking, it seems absurd. Even with the gold standard, it seems absurd. Maybe it was different when it was all bank-mediated. Now, with bank-to-bank lending, fractional reserve banking is functionally exponential -- there is no limit to the amount of money that can be created.