Being the Change

One great ironic tragedy of the GFC was its impact on the baby boomers self funded retirement. Namely that the single largest age segmented demographic in the developed world had betwixt 30-90% of their nest egg wiped out as markets corrected. Which is important, they didn't crash, they corrected in a huge crashing motion. Largely because there was a whole lot of money created on paper that never really existed in reality, like a mistake, it was erased never to be mentioned again.
It's a pity though that many many people were counting on that mistake to fund their lifestyle demands for the next 20 or so years.

There were of course all different kinds of investments, cash, shares, property, financial derivatives etc. The bookies didn't hedge their bets, everything was interrelated, they all crashed once the confidence burst.

But the key one in this instance, the GFC was property, investment property. Namely all the investment properties that had nobody to live in them.

I don't know why, I don't know when, but I know that someway, somehow, the property market often becomes irrational.

I don't have time to go into detail, but here is the rational backing of property as an investment category:

1. An investment is something you purchase that earns income.
2. That income will eventually generate a positive return on the investment (ROI).
3. A property generates rent when utilised. The rent is the income from property.
4. For somebody to rent a property they would have to profit by it, the rent therefore must represent an affordable portion of their wages. (psuedo-officially 30%)
5. The price of property must be based on it's earning potential. The higher the ROI the higher the price.

Okay, so that is a basic overview, which means that if it were true in practice we would observe that:

1. Rent being based on wages would appreciate in-line or slower than wages.
2. House prices being based on rent, would appreciate in-line or slower than rents.
3. Therefore, house prices should appreciate in-line or slower than wages.

Now when I say slower, I mean in the sense of magnitudes. Thus you would expect that if wages increased by 4% per year, then rents, and houses maximum appreciation would be 4% or less.

It's not the case. That to me, deems property in most cases as an 'irrational' investment, because house prices seem to increase faster than rents (meaning ROI diminishes constantly) and that rents seem to increase faster than wages (at times).

Therefore, I cant rationally explain why people are willing to pay more for a house for diminishing returns, and therefore can't reasonably expect the pattern to continue.

It's a s good as guessing.

And a whole fuckload of people guessed wrong.

Good news, I got a job. This means in a couple of months, Garage days will be over, I will move out and live in an actual room, as per my plan.

Now I wish to explain 'the change' I would like to see in the world:

1. Landlords provide what value?

Questioning the purpose and function of landlords is almost as unravelling an experience of preconceptions as questioning the existence and purpose of god.

I won't go into the detail, because I'm sure if you think about it, there is almost none. Very few landlords build houses, most often they buy existing houses, and if it wasn't for the presence of landlords, renting/buying would be very cheap.

A landlord in fundamentality purchases a right to tax your income, if people bought enough housing to service their own fundamental need for housing and no more, housing would be much much cheaper.
The presence of people with their own house, purchasing 0-100 properties in a year, just make it more expensive for everyone else, making renting for some a practical necessity.

Paying rent/paying a mortgage effects your cash flow, your wealth gets tied up in property instead of being spent on shit that is productive, like you.

2. Self-funded retirement through property.

The basic issue is this, how do you earn an income when you retire? There are many ways, on a superficial level it is known as putting your money to work for you.

You could for example give your money to a company, in the form of purchasing shares. Companies sell shares (which like on a pirate ship, represent a share of their precious booty) in order to raise funds. You give them the funds, they say 'great now we can buy computers for our employees' the employees can now work on computers, it makes them more profitable, the increased profits get shared with you the shareholder.
Shares are productive.

But most choose a 'simpler' model. You buy someone else's house. Imagine a simple world where there's you, and someone else and a house. Someone else needs to live in that house. They know it, you know it.
You are richer than someone else. They bid on the house, you bid higher. This pushes the price up. You have more money so you buy it at the price they can no longer afford to buy it at.
Then you walk over to someone else and pat them on the back and say 'don't worry, I don't need to live in this house, I'll rent it to you.'

That self funded retirement means that they are out their (being a young person) working for some struggling company (that you could have bought shares in). They bring home their wages for doing productive work, and you take a share of that money as per your entitlement to price them out of the housing market.

3. Obviously, I'm exaggerating.

The real property market has literrally, millions of buyers and sellers and properties, so it's never that straight forward. Most people don't rent the house they tried to buy, but rent another house. I've just grossly simplified it to illustrate the 'net effect'.

If people didn't own surplus property (AKA investment property) then renters wouldn't have to rent they would just buy, and it would be cheaper than renting.

Self-funded retirement through the landlord plan I am saying, in principle is counter productive, you take money out of the productive market and you live off of someone elses efforts.

OR, the working population pays rent to the non-working population. A similar arrangement was once described as 'the working class' a term that when you think about it implies a lot about the 'aristocracy' (or the non-working class, the parasitical class etc).

It's not communism, it's free market, and the term used by economists is 'rent' which is basically an undue entitlement.

4. Me.

I have almost nothing though, and the only reason I am working is to give my money to productive efforts by some of my close friends. I am investing or plan to invest in their productive working lives.

I am the anti-landlord, instead of contributing effectively no value, and taking from their income, I hope to increase the income of others such that they may work, live and breath easier. I'm ethically committed to doing this for the rest of my life.

5. The Irony.

Self-funded retirement, was supposed to ideologically prevent the baby-boomers from being a financial burden on their children. They would earn income in their twilight years that would fund their lavish lifestyles on into the sunset.

The irony being that they chose to do so through buying up the property market, rent and mortgage repayments being the largest financial burdens most people face. They self-funded their retirement through becoming a socially sanctioned financial burden, the land-lord.

But this lead to a huge property bubble, because baby-boomers outnumber the younger tennants and thus a huge glut of investment properties was built with nobody to ever live in them, and the house prices pushed ever upwards with 'irrational exuberence' as Greenspan would call it whilst lowering interest rates, and then all the paper wealth was wiped out.

And in the end, it would have been less of a burden to jack up the pension and just have all the superannuation funds invested into industry, start-ups etc that could make younger people more productive. Nobody would mind a pension increase if their wages had grown 10% per year.