I like your "non-money" society experiment. It makes us look more carefullly at what we are trying to say. What, exactly, are we asking these people to value? The utility of having somewhere to live? Or the utility of somewhere to live plus the prospect of this being much cheaper in 30 years's time when you have paid off the mortgage? And, on renting vs mortgages, the utility of a fixed repayment versus a repayment that may vary over time?
It all comes down to the fact that the purchase of a hosue is not a single economic transaction. It is an action that obtains a utility (somehwere to live). It is also an investment. It is also a gamble (in that you are "gearing yourself up" in the whole property market by borrowing to buy the house in the first place). This is why valuing it is so hard. Because, if you buy, you aren't even measuring the utlity against current monthly spend. You are measuring the utility against future spend, agasint future inflation and against future interest rate movements. In the end, your head spins and you just sign onthe dotted line and pray that you get lucky. People who bought in early 1989 did not get lucky, while people who bought in 1996 got very lucky indeed. But they both got the same "utility" value from living in their house.
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Re: house prices
Date: 2005-09-18 09:55 pm (UTC)It all comes down to the fact that the purchase of a hosue is not a single economic transaction. It is an action that obtains a utility (somehwere to live). It is also an investment. It is also a gamble (in that you are "gearing yourself up" in the whole property market by borrowing to buy the house in the first place). This is why valuing it is so hard. Because, if you buy, you aren't even measuring the utlity against current monthly spend. You are measuring the utility against future spend, agasint future inflation and against future interest rate movements. In the end, your head spins and you just sign onthe dotted line and pray that you get lucky. People who bought in early 1989 did not get lucky, while people who bought in 1996 got very lucky indeed. But they both got the same "utility" value from living in their house.