Don't Buy a House, Rent One. Buy a residence at half price. Invest with a profit of 2000% over two years
The calculations of all the analysts concur: the cost of housing is 50% to 100% over its real value. If the housing bubble is successfully burst–and the ideal conditions for doing so are currently in place--you will be able to buy the house of your dreams for half of its current price within 18 to 24 months. Up to you to choose: do you prefer to spend 480,000 euros on an apartment at an “inflated” price today or to buy it for half that sum in 22 months?
How Do We Burst the Housing Bubble?
As we have indicated on numerous occasions in this forum and elsewhere, the key to reducing the price of housing is decreasing demand. This is an indisputable fact in a market economy (and there is no other). In fact, as long as the demand remains high (or there is even the possibility of high demand), the speculators will profit.
In Spain, three groups of housing applicants can be distinguished:
1) people who really need housing, whether because they seek to be independent or to start a family or because they wish to stop paying rent. This group is almost exclusively composed of young people between the ages of 20 and 35 and of immigrant workers;
2) investors/speculators: in order to profit from the needs of the preceding group, they use their excess capital (from savings, income from commercial activities and family businesses, from stock market speculation or various organised crime activities) to buy housing. Protected by a favorable tax status, they then wait for housing prices to increase sufficiently to resell at a noticeably greater sum;
3) nationals (or citizens of the EU in particular) in search of a second residence.
The first group fortunately remains the largest; it is up to them to channel supply and demand toward a decrease in prices. There is nevertheless a whole series of obstacles to overcome for this group to become aware that it can and must attain this objective. It is just a question of ingrained psychological factors: the idea that renting is a waste of money, that one is not free unless one owns the place one lives in, that in a mercantile society one is less than nothing if one is not a property owner and, of course, the fantasy that by buying one does not simply become an owner but equally an investor, and thus that one begins to become richer from the moment of signing a mortgage.
On the other hand, a certain number of groups with enormous interests in the sector permanently nourish these biases and foment people's obsession with acquiring a house at all costs: real estate promoters, investors/speculators (the second group mentioned above) and even the government, convinced that the GDP depends to such an extent on high housing prices that lowering them would be catastrophic.
There is unfortunately another group, larger and more influential than all the others, that lobbies for the same thing: it is the one constituted of people who have already resolved the problem because they have already bought and who constantly suggest to those who haven't yet done so to take the step. Although they don't have direct interests, this group exercises a much greater pressure than the others because it is composed of relatives, friends and acquaintances of people seeking housing. The attitude of these people confronted with housing seekers ranges from sincere concern to scorn (proper to those who recently signed a 40-year or more mortgage and are probably unsure of their decision.)
In spite of all this conditioning, and even though they feel powerless and are subject to pressure from all sides, future buyers could easily master the situation.
Why is the current situation ideal for bursting the bubble?
First of all, because prices have reached such exorbitant heights that every trap held out by the market to “catch” new buyers--of which the most pernicious has been the extension of amortisation periods and mortgages up to 50 years—begins to fail. In general, people see a 50-year mortgage as in reality an intergenerational debt and feel that it is morally unacceptable to ballast the future of their children (who often are not even born yet) with burdens one can't know if they would even accept themselves.
* Secondly, due to the slowing of price increases, which has convinced people that it is worth waiting to see what happens next.
* Thirdly, because we find ourselves at the beginning of a petrol crisis that will cause inflation to skyrocket and raise the cost of money (interest rates). Monthly payments will become prohibitive, even with amortisation periods of 50 years.
To come full circle, then, the principal group of buyers, those who truly have need of housing, need only decide to put off buying for some time. If they rent for two years at the most, the 15,000 euros spent to do this will actually be the best investment of their lives, for it will allow them to economise up to 300,000 euros, depending on the type of housing sought. Do you know of another value, investment fund, banking product or State bond whose revaluation can reach 2,000% in two years?
There exists on the market a large number of rental housing offers at reasonable prices, particularly when compared to sale prices. Considering it stupid to pay rent equates with thinking that paying for a hotel room is idiotic. Someone offers you a service (here, housing for a fixed term) and you pay in exchange. What is idiotic about this commercial transaction? When people claim that for the rental price, or a bit more, you could buy a house on a long-term mortgage, they forget that at current sale prices, you would only have access to a residence much smaller and less well situated than the one that you rent, while paying the same price (or much more if the interest rates increase) for 40 to 50 years. Put another way, with capital and interest to invest for the price of a home, you could rent it for 100 years or more. Who is the idiot there?
And if the prices don't go down in spite of everything?
This scenario is economically improbable and sociologically impossible. To guarantee the strategy's success, people must stand their ground for at least a year and a half and there needs to be widespread support for the decision to rent instead of buy.
We must keep in mind the situation that will be created once people are resolved to burst the housing bubble. This is probably the most important section of this proposal, which should thus be distributed to the greatest number of people and read by the maximum of those concerned.
1.-During the first months, the market will barely react. Its actors (real estate agencies, administrative organs, banks, etc.) will not be alarmed and will even reinforce their position: “buy and get rich”. It is possible that early on when prices begin to decline (which first affects houses whose prices have increased the most) the investors/speculators, thinking to make a deal, will profit by making a few acquisitions, which will bring a breath of fresh air to the market.
2.-Once this first apparent reaction to the increase has passed, prices will begin to go down, this time in freefall. The explanation for this is very simple. Even if a few “naive” investors see a good deal in stagnation or mild price decrease, most of them will stay on their guard and will liquidate their investments en masse as soon as they perceive that the increase was only a mirage. That is the dynamic of all speculative crashes, of which we have known a certain number.
3.-Today, around a year after people have opted to rent, we estimate that the group of speculators, the most harmful during the inflation phase, came over to our side, in spite of itself. Panicked reactions from financial entities remain to be seen, as well as appeals for calm, the announcement of aid to the sector, measures to revive demand, etc.
4.-But we must remain firm. Don't let yourself be persuaded that you are guilty of anything: not of unemployment in the construction sector, nor of any business's difficulties, even less so of the dip in the GDP or of economic stagnation. Your only objective was and remains to buy a home at the real market price not burdened with a sort of “revolutionary tax”, with which a handful of unscrupulous speculators would fill their pockets. The government will have required you to do nothing in your actions to regulate a market based on corruption.
Although an appreciable decrease in prices has already occurred and buying might tempt you, it is suitable to abstain until homes reach 50% of the value they had at the beginning of the process, as much because buying early would represent an absurd waste of money as because of the risk of stopping the dynamic too early. Realize that demand is disappearing, not only because buyers have decided to wait and speculators are resolved to sell, but equally because people seeking a second residence, that is to say those in the least hurry to buy, from the perspective of the ongoing phenomenon, have also left their decision in abeyance.
5.-During the final phase of the process, real estate agencies, so harmful during the inflated-price phase, will also be on our side. Imagine that market fluctuations have no impact on them (even though they prefer increases, since in that case they profit more from each transaction). Only, they can not withstand market paralysis. That is why, if formerly they promised their clients that thanks to their real estate they would earn more money than they could have dreamed of, now they will command them to sell at any price.
The bursting of the bubble is thus a process that feeds on itself. People seeking housing have only to wait comfortably in their rented homes.
So that no one is alarmed, the country will not collapse for all that. Spain fortunately counts more creative, healthy and honest sectors to sustain economic growth. Moreover, once the construction sector is regulated and balanced, it will return to the hands of more specialised and capable entrepreneurs (in our day, even bullfighters play at real estate promotion). Corrupt, sinister, lying actors will disappear from the scene.
The success of this proposal will pass lastly through a massive response from people who need to buy, who will have to decide to rent. For that the proposal must get to the greatest number of concerned parties. Short messages, following those in the first part of this proposal, can be distributed through blogs, forums, email or SMS, always including a link to this web page or any other page where the integral content of the proposal can be consulted or downloaded. Stickers placed in buses or windows will be equally valuable, as well as bulletin board notices or newspaper classifieds, etc. In any case, the pressure to which potential buyers are subjected by those close to them must be diminished, whence the necessity for a deluge of messages that promote renting as a provisional measure for access to suitable housing.
by Francisco Eppur Muove (www.viviendadigna.org, Email: info@viviendadigna.org)
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