Just read commonwealth bank declaring 9.7 billion dollars in profits primarily due to home loans - https://www.9news.com.au/national/commonwealth-bank-announce…
What if the banks never offered home loans as in there was no such thing?
All you had to do was buy with what you have in your account/under your mattress.
Would we have been better off without crazy interest rates and people have to slog all their lives with a 25/30-year loan?
@SlavOz: Independence is way different from isolation, mate, much as good advice is different from imposing your will on a kid.
But here's an exercise. Let's bring up a list of the most successful people in the world. Take an arbitrary number, say a million. What percentage of those do you reckon still lived with their parents way past adulthood? What about post-success? Does that necessarily mean they've isolated themselves from their family? I'm sure a few of them would have, but what about the vast majority?
@jatyap: What a silly scenario. Of course if you do a study of only the successful people, you'll get a lot of suggestive results. Every famous athlete prioritised sport more than their schoolwork, therefore all children should do the same thing right?
Not really. Ultra successful people are extremely rare. The majority of people who chase a dream as athletes end up failing. In this day and age, the majority of people who move out at 18 only end up financially trapped as they never get a chance to save or plan their career.
@SlavOz: And how do you come up with the numbers that say "the majority of people who move out at 18 end up financially trapped"? How can you prove it?
Secondly, even if you removed the arbitrary "top million most successful" condition I drew up, and kept it to adults who are financially stable enough to not have to worry about a roof over their head and three meals a day. I'm still willing to say the majority of those have moved away from their parent's homes. It's not being anti-traditional. That's just the way normal humans (and most animals) work - your parents support you until you gain the capability to be independent, and then you leave.
Furthermore, in advocating for young people to stay on longer with their parents, without regard for the control issues that arise, how do you justify the number of people who do grow up with financial security, but who aren't happy, because it's not the life they chose for themselves? You are perhaps underestimating the proclivity of parents to live out their vicarious dreams through their children.
How can you prove it?
Really doesn't take much to see how stifling our economy is on most people, let alone 18-year olds with very little career prospects. All they can do is rent, and it's virtually impossible to ever become financially stable if you're renting long-term.
That's just the way normal humans (and most animals) work
No, it's just the way a small subset of humans in the Western world have forced themselves into. The majority of the world sticks to their family or community for life.
do you justify the number of people who do grow up with financial security, but who aren't happy, because it's not the life they chose for themselves?
lol nobody ever dies regretting their lack of career success. On your death bed, you won't care about how much money you made or which superficial dreams you did or didn't acheieve. The only thing people think about is their family and friends - ideally they won't have to because those people will be right by their side in those final moments. That's all that matters. Everything else humans chase is just a temporary distraction. It's just tragic that most people never realise this until it's too late.
No, it's just the way a small subset of humans in the Western world have forced themselves into. The majority of the world sticks to their family or community for life.
Have you lived in Asia? You'd be surprised how untrue that statement is. People do stick around our families, but that doesn't mean they stay in the same house, which is what you were suggesting. Closeness and intimacy does not automatically prohibit you from living apart from people you are close with. And to tell you the truth, family rifts are even more common among the financially less fortunate.
lol nobody ever dies regretting their lack of career success. On your death bed, you won't care about how much money you made or which superficial dreams you did or didn't acheieve. The only thing people think about is their family and friends - ideally they won't have to because those people will be right by their side in those final moments. That's all that matters. Everything else humans chase is just a temporary distraction. It's just tragic that most people never realise this until it's too late.
Man, those statements make me think life really did a number on you. Your family doesn't always disappear if you move away from home. It's not the physical closeness that matters so much, but the emotional one. Simply being physically close (e.g. living under one roof) does not always result in that. A lot of times, it's the exact opposite. You've probably heard the phrase, "familiarity breeds contempt…". So just no… I would argue that being emotionally close has a lot to do with shared vision and shared values, neither of which can effectively be achieved through coercion.
Just because you make yourself available to your family when they are in need does not mean you should make themselves a slave to their wishes. Similarly, just because your family is available to help you does not mean you impose on them as much as you can, without any attempt to become independent.
Have you lived in Asia?
I have lived in Europe, extensively. Because building regulations are much more relaxed, it's customary for adults who get married to build an extension or seperate dwelling on their parent's property. Moving out completely is often impossible and impractical.
I would argue that being emotionally close has a lot to do with shared vision and shared values,
Sure, but if you look at the trend in most Western countries, people often grow apart from their family as they get older, or abandon them completely. I can't imagine putting my parents in those dreadful aged care homes. I'll sell everything I own before I decide to seperate myself from my parents at a time when they could literally drop dead any day.
I heard so many stories of work colleagues begrudging their parents during covid because they disagreed on vaccines or social distancing - nan wants to hug her grandkids while mumzilla swoops in and stops them. That's no way for families to operate.
And if you go out and ignore your parent's advice, I doubt you share the same values.
I have lived in Europe, extensively. Because building regulations are much more relaxed, it's customary for adults who get married to build an extension or seperate dwelling on their parent's property. Moving out completely is often impossible and impractical.
Very different in other cultures. There's a lot of racism among older generations of certain cultures in Asia (not to mention other places as well). When I was younger, I was "advised" not to play or get close to people of a certain race. Thankfully that advice did not come from my own parents, but from some of our very close relatives.Think those adults still knew better?
Not just that, a shared culture is fine, and most of us, to some degree will always participate in the cultures and traditions we grew up with. However, I don't see drowning your personal identity just to follow
And if you go out and ignore your parent's advice, I doubt you share the same values.
It's not an all or nothing thing. I take most of my parent's advice, and I ignore those that don't apply. What can I say, my parents were still as close to me as ever, despite the fact I have been living apart from them since the age of 15 (most of the time, even in faraway cities or in different countries). Dad's gone now, but my mum and I are extremely close. That's not to say I follow her advice all the time. She has some reservations about members of certain religions.
I have reflected a bit on one of the earlier statements you made about "tradition being the only way we learn from the past", and I have come to the conclusion that that is not true at all. You don't have to participate in a particular tradition to be able to avoid the mistakes your precursors or ancestors have made. Transfer of information is absolutely necessary to learn, but that does not mean blindly following tradition. In fact, I think the opposite is true. Being open-minded and assessing scenarios/situations, behaviour and results objectively, is a better way to learn from others' mistakes. Sometimes this requires reaching outside traditional norms.
I would imagine this would favour cash rich people, if price is lower and number of eligible buyers is lower.
For non cash rich people, you might have to wait a decade, whereas now, you can buy now.
We don't really have to imagine, before the 1980s credit was extremely limited.
My Dad's comment was the banks only lent money to people who didn't need the loan.
His first mortgage required a 30% deposit, and was via a non-bank - a solicitor who organised loans from some of their wealthy clients to homebuyers they knew or could vouch for.
And he was a respectable Commonwealth public servant, with good savings and reliable income.
The exception to this was some gov funded schemes like Landcom, where you could get a government backed loan in new build estates.
The upshot was it made class mobility harder - the already wealthy could get access to credit, so your kids could get a mortgage in the nice suburbs close to mum and dad, while the poorer people rented or could only buy on the outskirts.
Freeing up credit when banking was deregulated meant if you had an income, you could choose a flat in a nice suburb or a new development on the outskirts, not have that choice dictated by you access to funding.
So back then it was like it has become again, only now its due to huge house prices. If you don't have access to the bank of mom and dad, if they're not well off, you can't get into your first home.
So has essentially come full circle if mum and dad aren't there to guarantee your loan.
This is one of the most ridiculous takes I've ever seen. Debt is the great equaliser. You don't have to go far to see what happens in an economy which has no access to debt - look at many of the countries in Asia.
People cannot buy real estate at all without money from their parents, people who start from the bottom are never able to get up in society because they cannot leverage.
You will lose any sort of class mobility because getting a high paying job will not help you - sure, it means you have to save for 10 years instead of 15 years, but who's counting at that stage, right?
Basically, the long and short of it (if you can't follow) is that people will always be borrowing money, whether that be from banks, from "connections", from family and friends. Having a deregulated banking sector means that everyone can borrow openly from banks. Without that, the only people who will be able to borrow and "get up in life" are those with the right connections, those from rich families who can lend them money…etc.
This was the situation not that long ago right here in Australia, just around 30 - 40 years ago. Yes, if you have money, it was a better place to live, but if you didn't, it certainly was not.
So you're blaming the ability to go into debt for climate change, are you? Debt in developed economies allows increases in wealth which bring increases in consumption which causes increased CO2 emissions which causes climate change? None of which we'd have if we'd stayed poor. Like the people in undeveloped economies. Its all the fault of debt letting us buy stuff before we've earned the money to pay for it. And we've done that to the planet too. We've borrowed from the future, and now the planet expecting us to start to paying it back, which will leave our children poorer than us.
You could simply remove the ability to use the property as a form of security (that is, remove a bank's legal claim to the security).
That would change the rate on a mortgage to that of a personal loan and thus lower house prices significantly.
Of course affordability (or rather lackthereof) is mostly unchanged but the price-risk is way less. And those who save and then invest will have higher returns as they won't have the crippling loan.
Seems way better IMO. The key would be gradually bringing in the change, politics, etc.
Financially and economically speaking though it makes perfect sense.
I imagine a lot more people would be renting and housing ownership would be a lot more consolidated. People spending significant chunks of their income on housing isn't surprising and would have happened regardless of the banks because there's such ridiculous profits to be made.
Wait till you add up the tax components of a new home….
I think its the idea that past generations automatically will be able to keep the future generations back to ensure they keep working and therefore provide for the country and pension. But yeah the system is heavily geared towards those owning houses
Yes I'd like to see the eradication of ridiculously large loans but at the end of the day you have to be stupid enough to take them out, so really you dig your own grave on that one.
so really you dig your own grave on that one.
I agree. I don’t think people understand that, just because they can get a mortgage rate starting with a “3” that somehow makes it much easier to stomach a $1m mortgage.
There was an article in the ABC (inb4 “oMg LeFtIeSZS1!1!11”) where some lawyer and her husband bought a house for $1m or something and are now starting to realise “shite, maybe $1m isn’t a trivial amount of money” lol especially with rates starting to go the other way.
Yeah saw that article
"But the RBA promised"
Sounds like a trip back to many centuries ago.
How are people meant to buy their home? Bartering? War? Gifted to them by a monarchy/nobles?
Oh you mean if there was no banking system? You probably would be a peasant for the local warlord
In my opinion, the internet and sites like realestate.com.au are to blame for house price rises - not the banks.
Prior to the internet you had to rock up to a realestate agency shopfront and look at potentially a single photo in a window, and consult a book based street directory to learn the location of a property. You may have 3 or more agencies in the suburb, and the whole process was exhausting. You had no mobile phone either to be contacted on, and how many people would want to supply agents with home/work phone numbers. You essentially then limited your search scope to a couple of suburbs and maybe a single agency. Most people couldn't be bothered.
Compare that with now, where with a few taps on your phone you can identify price history of a house, locations/proximities to transport options and schools, travel times, potential rental incomes, photos of a property and previous listing phots etc etc. You want to buy the best property your money can afford - and everyone else in the same price bracket with same locations in mind has the exact same idea - supply and demand.
I think this had probably just made the market more efficient. Less bargains and less overpriced properties. People have a better idea of what properties are worth now.
Op please never go into economics or anything important if this is your mindset
Imagine house prices without the "investment property" meme in Australia.
OP username checks out
https://michael-hudson.com/2011/12/democracy-and-debt/
"relinquishing policy control to a creditor class rarely has gone together with economic growth and rising living standards. The tendency for debts to grow faster than the population’s ability to pay has been a basic constant throughout all recorded history. Debts mount up exponentially, absorbing the surplus and reducing much of the population to the equivalent of debt peonage."
What can we do better / different? Well look at Singapore which has a 90% home ownership rate and much lower household debt to GDP.
https://progressandpoverty.substack.com/p/singapore-economic…
Government needs to actually manage the land & housing market, not leave it to the "free market". Neoliberal ideology is a failure.
Dr Cameron Murray argues there is no need at all for private banks to lend against real estate…
"HouseMate would offer loans underwritten by the federal government for up to 95% of the purchase price, charged at one percentage point above the cash rate, which at the moment would be 1.1%". This could be done directly thru the RBA.
What can we do better / different? Well look at Singapore which has a 90% home ownership rate and much lower household debt to GDP.
I don't know why everyone keeps comparing us to Singapore. Most people who do this have never lived in Singapore. It's a place that is ruthlessly competitive, where the top become rich, the brightest of the middle class can move up, but the rest of society are extremely poor and working for starvation wages.
Government needs to actually manage the land & housing market, not leave it to the "free market". Neoliberal ideology is a failure.
What do you mean by "manage the land & housing market"?
To be honest, I wouldn't say neoliberal ideology is a failure, but rather, that humans (as a species) are naturally social climbers, competitive, love to show off, love thinking we are better than others, love having a NIMBY attitude…etc. Neoliberal ideology just exposes how vapid and hollow we are.
Just as an example, when I worked in the CBD full-time, I bought a 2BR apartment which was more than enough for my family for < $500K around 15 mins (by PT) from where I worked. Is it a 4BR double-storey house on a 700m^2 block of land with a white picket fence? No. Is it more than enough space, in a good enough location, with far better living conditions than most places around the world (including "revered" Singapore)? You bet.
Now that I mostly WFH, I moved around 60km away from the CBD, have loads of space and can work comfortably. Again, is it a "blue ribbon" suburb? No. Is it next to a golf course, with upmarket and hip restaurants around the corner? No. Do I need that? No. How much did I pay? < $600K.
Then I see everyone paying millions for houses that are smaller in expensive suburbs just to be a part of the crowd.
I have a lot of empathy for those who struggle to find shelter. Fully support having more social housing, reduced rents…etc. But for people earning $150K+ and complaining that they can't afford a $2M house, I just find it hard to blame anything other than how vapid we can be.
Australia's homelessness rate is 30x higher than that of Singapore.
In Singapore (which has a population of 6 million on a land area 10% of the area occupied by Sydney, the average selling price of new 5 room 110m2 apartments from HDB in 20/21 was in the range $291-471K. 4 room 90m2 apartments sold for $192-321K new. 3 room 65m2 $88k to 173k. The reason we pay more is corporate rent seeking.
https://www20.hdb.gov.sg/fi10/fi10221p.nsf/hdb/2021/assets/e…
Manage the land and housing market means sensible government policy that serves the majority rather than tax breaks for property owners and for profit investors, and addressing rampant land banking and buy out of state and local governments by developers. Living standards are increased when people can afford to buy more goods and services with savings. Not from inflating the price of essentials like housing and then offering bigger loans.
90% of Singaporeans own because the majority are subsidised by the govt. Also within the rules, you cannot be single and buy a HDB flat or at least, it would be next to impossible to buy one when you are single.
The people who want to live in the nice areas are spending north of $500k easily, and there is a waiting list.
https://mothership.sg/2022/07/hougang-million-dollar-flat-so…
We all know that whatever the govt touches and adds as policy, they will most likely screw it up.
So no, I don't want a Singapore-like framework.
p.s. I have travelled lots to Singapore and my wife is Singaporean.
@pogichinoy: Singapore's qualifying specific HDB purchase criteria are a matter for singapore - i don't recall suggesting we must adopt them word for word here.
Australia's waiting list is longer when you consider homeless, public housing waiting lists, and renters locked out of the housing market.
Clearly you have no concept of how land markets function absent regulation and no understanding about how Australia has gone backwards while Singapore has raised the living standards of it's population.
Singapore had a 20% home ownership rate in the 1950s, Australia went from 52% in the 1940s to 71-72% in the 1960s and has since declined to 67%. Guess when Australia stopped large scale public development of affordable housing?
Government is the only protection there is from market abuse, monopoly's and rentier interests. Those that don't understand history are doomed to repeat it. I take it you are very happy with the large energy bill increases heading your way then?
@Assiduous: How about you actually compare apples to apples? Compare the real Singapore home ownership rate (i.e. not HDB) and compare it with the Australia home ownership rate.
Renters aren't locked out of the housing market. They need to adapt, move to where there is availability and where they can afford.
Large energy bill? Yes. Higher interest rates? Yes. Anything else? Yes. You sound like you've never lived through a recession or difficult times.
If you are not ready for it, that's your own fault, home owner or not.
@pogichinoy: Thats a bizzare take to suggest that the ~72% of Singaporeans who own a HDB apartment are not real home owners.
You appear either accepting of or ignorant of the factors have driven up property prices, you have blamed renters for their own circumstances despite saying in the post above that you "Fully support having more social housing, reduced rents…etc", are happy to be exploited by cartel behavior, and seem closed minded to the possibility things can be changed for the better.
Good day.
@Assiduous: They are unit owners in large complexes of mass, industrialized housing, and like a previous comment mentioned, a lot of them are government subsidized. Pretty far cry from most people's ideas of "owning a home" here in Australia. It would be a pretty simple to show somebody who's lived in Singapore to compare an "average" home both in Singapore, and over here, and ask them which one they preferred, assuming they could choose.
@Assiduous: It's not bizarre when you understand the differences of 'ownership' between both countries. HDB ownership is also sold on 99 year leases. They use the term ownership over there to give people a false sense of the actual term, just like how they do with vehicle ownership.
I've been in and observing the property market since I was in high school. I'm quite aware of the factors. I blame private renters for their own circumstances. But public renters are different as they are in different circumstances. Landlords are also to be blamed for taking the risk and failing.
Cartel behaviour? Please stop with the hyperbole.
What is the 'better' in your eyes? As much as I believe in fairytales, ownership is not achievable by everyone. It's unrealistic to think that it would be.
@pogichinoy: Australian Capital Territory, Australia - 99 year leases.
https://www.abc.net.au/news/specials/curious-canberra/2016-0…
If the NSW government needs your freehold land, guess what happens? Compulsory acquisition.
https://www.nsw.gov.au/housing-and-construction/property-acq…
https://www.straitstimes.com/politics/national-day-rally-201…
"But if flats were to be sold as a freehold property, the Government would eventually run out of land to build new flats for future generations, Mr Lee said. Those not lucky enough to inherit a property would get nothing."
"Our society would split into property owners and those who cannot afford a property, and that would be most unequal, and socially divisive," Mr Lee said. — Essentially what is happening in Australia.
Bruce Robertson, an energy analyst with the Institute for Energy Economics and Financial Analysis (IEEFA) said Australia was in "a rolling energy crisis caused by the gas cartel"
"The ACCC report doesn't use the word cartel, but it describes cartel behaviour.
"If there's cartel behaviour, if they have been colluding to keep prices high, then they've broken the law and that should be investigated."
The Australian Energy Market Regulator has said it plans to investigate potentially illegal behaviour by the gas companies.
https://www.msn.com/en-au/money/markets/gas-users-and-expert…
If you really want to know what's better in my eyes, then read the three articles in my first post.
@Assiduous: It's quite different when you compare a govt acquiring EVERY HDB property after a 99 years lease, and when the govt forces you to sell your property due to development at a smaller scale, but if you think they're the same, then you do you my dude.
If you really want to know what's better in my eyes, then read the three articles in my first post.
Do you also like the fact that the SG govt does not permit you to own a car that is older than 10 years or are you still simping for their govt?
Property prices would still be high because rental yields would still result in people purchasing them for investment purposes. This would really only achieve restricting everyone but the wealthy (and by this, I don't mean someone earning 100k lol) from property ownership, with pretty much everyone becoming renters.
This doesn't make sense. Debt can bring forward the purchase but also bids up the price of scarce assets. Property prices are to a large degree determined by what the banks will lend. People have been using property equity to get investment loans. Less credit would reduce this. For every dollar a person on the median income can borrow, a wealthy person can borrow many dollars. We have seen property ownership has concentrate into the hands of the wealthy as interest rates were reduced and lending standards loosened over the last 30 years.
I'm not saying that property prices won't drop, but rather that they will still be "unaffordable" with or without loans. I don't doubt the concept that prices are partly driven by the availability of credit to the "masses", but the problem is that rental yields in most cities are positive. If you remove residential lending, it will simply incentivise wealthier individuals with liquidity and corporate investors to pick up the depressed assets which would have increasingly better yields for them.
We have seen property ownership has concentrate into the hands of the wealthy as interest rates were reduced and lending standards loosened over the last 30 years.
That's not necessarily a bad thing. There's lots to be said about the downsides of our "mom and pop" property investment model, and the political ramifications of 20% of Australian households owning an investment property.
Not quite house loans but loans in general can change the world https://economics.mit.edu/files/5993
why are people so desperate to “achieve the dream of their own house” so early?
I’m 23 and I don’t see myself buying a house at least for the next 10 years, unless it’s a really good opportunity or for investment.
I don’t understand people buying houses and driving in and back from work for about 2 hours every day, wasting about 10 hours of their week + car depreciation + fuel costs, just to be able to say “I own my house”
I’m happy to pay rent for our place, my work is 15 min away, my partner work is about 15-20 away, and if we change jobs, we can simply move to a new place closer to the new job again, while when you buy a house, it’s not that simple.
That's why people dream of owning a "dream house" where their job is just 15 minutes away.
Most people will settle for "owning a home" (be it a house, villa, a condominium unit, etc) if they can't afford their dream house, though. Oftentimes, most people will have calculated the trade offs (like additional travel and maintenance) that come with owning a house.
There's a variety of advantages and disadvantages to owning your own place. However, most people who buy their own place are pretty much "fixed" in the geographic location. Some of the advantages include being free from your landlord's control on rent, inspections, as well as what you can or cannot modify in your home. Additionally, you no longer have to worry about losing your place in between contracts, rent increases, or if the owner decides to sell, or make use of the rental themselves. This becomes even more important if you decide to raise children or have extended family stay around.
Financially, as soon as you own your own place, you are paying money towards equity, which is real value you can use as security for future loans and/or purchases. Renting, you are pretty much helping to pay off the owner's mortgage.
There is no one correct answer. Each person does what is best for their current situation, but for a lot of people, it makes much better sense to start owning earlier, rather than later.
It's because house prices increase each year. If a house that was 1mil in 2010, is now worth 1.5mil in 2020, that means it has increased 500k in 10 years, or 50k per year.
How much can you save in a year? I'm guessing a lot less than that. That's more than a lot of people earn full stop. What's the point of working or saving, when a piece of land that does nothing can make as much or more than you do.
So the strategy many people have, is to buy a house now, any house, so that they are 'on the property ladder'. Then, in 10 years when the dream house they want to buy has increased by 50%, the money they've already invested into their starter house has increased by a similar proportion, allowing them to sell the starter house and upgrade.
Idk I think that basic needs shouldnt be a comodity to invest with. if humans know one thing well its greed and want.
What if the banks never offered home loans as in there was no such thing?
Why? Banks make all their money on loans. They don’t give loans out of goodness in their hearts :-)
If there was no such thing we gotta go back and we’ll find no such as banks would exist.
Interest/usury is haram, brother.
Europe……
I don't understand how you think this would work.
The price of land would be a fair bit less, but the materials and labour to build a house would either be :
A) similar, so still extremely expensive to save up with cash
B) cheaper, meaning that all other businesses /workers in the system would be earning far less. The entire economy would be slower and everyone would be poorer as a result
It would only further the divide between rich and poor. If you don't come from a wealthy family, it would be even harder than now to buy a house.
I cannot imagine how this would possible make a better world.
You don't have to imagine it. Just go back in history and look at feudal system. Basically you would end up with class based society where the lower class will never have the ability to buy and landlords will own all property and you pay whatever rent they demand as you will have no other choice.
Would be cheaper because people wouldn't have 3 investment properties.
Might have a worse rent situation though.
Interesting hypothetical.
I'm interpreting your scenario as if banks never offered money for loans (instead of all of a sudden stopping)
Given that, my guess is that property prices would be much MUCH lower.
HOWEVER, that doesn't mean that you would get your foot into the market quicker.
i.e. if it took you 20 years to save up to buy a house today, then it would likely take you the same amount of time to do so without loans, even if the property price was lower. Also keeping in mind the markets to overlap and interact with each other. If property prices were lower with there being no loans, it's likely that your salaries would also be lower.
I'm not saying it's a bad idea, its just a tough one to understand the state of the whole economy with this one piece of the puzzle removed.
Actually local banks will not exist (as many as today at least) if a massive industry of mortgage debt wouldn't exist.
Those wanting to buy a dwelling will buy one, with little or otherwise oppressing sacrifices but they will.
Mortgage debt makes it accessible to everyone via 25/30/more years of debt (and interest) repayment.
the whole fractional reserve banking system is a farce imo. banks get to loan out money they don't have for massive profits and cause massive inflation. money is a primary driver for career choice, which means we end up with lots of people in banking careers that really don't do anything positive for society. technology and education are where societies' financial and human resources should really be going into as they bear the most fruits for society.
Technology and education are also funded by the fractional reserve system. Technology is supported through a combination of heavy private equity backed by enterprise lending against equity. Running a stable government would be impossible without deficit spending backed by tax revenues.
Credit is simply a way of pulling forward growth. Directly badly it can lead to inflationary price growth in various asset classes, used well it can act as a productivity multiplier by investing in productive capital. Credit is an invaluable tool, it's how it can be applied that can create issues. Moving away from the fractional reserve system would take us back to an even greater level of wealth inequality, as only the rich would have access to financial leverage. Given any level of scarcity, the wealthy would rapidly crowd out the non-wealthy and we'd have even worse intergenerational wealth accumulation.
sounds like true communism without the corruption
no private property with communism
no cost either
your
The rich would own everything more or less.
You'd have to buy the land if you can and slowly build on top of it like many 3rd world countries.
I highly recommend watching this video to better understand the purpose and benefits of credit on the economy https://youtu.be/PHe0bXAIuk0
I have no idea how OP isn't on the board of the RBA or Treasurer of Australia.
Last time I heard about a board of a bank consisting of tradies and chaired by a priest they ran it into the ground and ended up having to sell it to private equity.
Economy may potentially collapse if home loans don't exist.
RBA can print money to boost economy but the printed money has to be lent out in order to flow into the market. If people don't borrow loans, the banks will stuck with loads of cash on hand whilst the economy shrinks.
Before OP asks questions …. its already been done https://en.wikipedia.org/wiki/Starr-Bowkett_Society
A registered society is formed with a limited number of memberships available. New members are assigned a number and select the amount of loan they wish to apply for. Members then pay a monthly subscription for a set time period - e.g. 200 months. The amount paid each month is based on the amount of the proposed loan, generally 0.25% of the loan.
Once the society has accumulated sufficient funds from subscriptions, ballot meetings are begun and held on a monthly basis. Loan recipients are chosen by a lottery. Once a member has received a loan, they pay it back, along with any amount still owing on their original subscription commitment. Once all members have had the opportunity to take out a loan, the society is closed and the original capital returned to its members.
So who is paying all the overheads of running the scheme? What happens if someone runs off with the funds and refuses to pay it back?
Usually they shut down and people lose a butt load of money. These scams schemes have been banned in many countries because of it. You are basically gambling that everyone involved is honest.
Id imagine many were scams. Theres a good reason banks are a more popular solution (APRA).
@surg3on: exactly, part of the interest rate charged with banks is a risk mitigation for bad debts. Banks build into their rate that there will always be dishonest borrowers or sometimes just unfortunate/unlucky borrowers that get hit by unexpected disasters.
Same risk as a bank startup before APRA was around. Many of these schemes eventually turned into banks.
i think the question should be, imagine what the market was like if everyone could buy a home with a 0% deposit
UK did 125% home loans just before financial crisis. Before pandemic 105% home loans were making a come back.
Now they are talking about changing max terms to 50 years.
In the UK they don't generally grant 30 year loans if it puts you over retirement age (65) otherwise they'd ask a how are you going to pay it off which you have to show your super amount.
Imagine there are no houses and we still live in tiny huts. There wouldn't be housing issues as there would be plenty of huts for everyone.
@Awoke: I agree and voted you up