A house is like a pair of shoes
By purchasing a house you cannot increase your own productivity, in the way a farmer does when purchasing a tractor. Look at one’s house as an object of use, however, and a very different world opens up.
When a farmer buys a tractor, he or she often has to take out a loan. With the aid of the tractor, there is an increase in productivity, i.e. the farmer can work on more arable land in the same time as before, producing more grain.
The increase in the quantity of grain sold makes it possible to pay the interest on the loan as well as repay a part of the loan on a regular basis. Looking ahead, one can count on a profit.
- A tractor increases productivity, but not so a house.
A house should be a utility, not an investment vehicle
The buyer of a home is usually dependent on a loan, a mortgage. In contrast to the farmer, however, the dwelling offers no opportunity to increase productivity.
In order to pay the interest and repay the mortgage, the buyer is thus forced either to demand more wages, to work more, or reduce expenses. Otherwise the house is unaffordable.
Similarly, but far more pronounced, the cash paid by tenants, meets not only the mortgage interest of the owner but also provides the owner with a profit.
Living space is as important in life as shoes
But isn’t a dwelling not simply a commodity, like a pair of shoes? Although houses cost much more to produce than shoes, they are, even so, a life necessity, the value of which decreases over time and with use, unless they are regularly repaired and renovated.
If houses were treated as commodities one would refrain from wanting to achieve a normal return from them. This would reduce the cost of living. When we use houses to make money through interest and repayments, we equate them with production resources and treat them like tractors or other tools and machines.
This entails an increase in costs in several respects: housing becomes more expensive, as a result of which wages have to rise, and entrepreneurs have to raise the prices of their products in order to pay higher wages or meet the real estate costs of the company.
Profit-free residential buildings
It is possible to make living space available without profit. However, the prerequisite is that the financing and legal framework have to be approached differently. How might that look? Several private individuals enable the purchase of a house through interest-free loans. The residents of the house repay the loans by monthly contributions to those who financed it. It is important that the house is placed in a construct legally designed to prevent it from being passed on or sold at a profit. What kind of company this requires is less important than that its statutes and contracts prohibit the house from becoming a vehicle for profit or speculation.
Cheaper living, less market bloating and bubbles
Homes financed in this way would be more favourable. There is then the possibility to compute housing finance to relieve families with children through more favourable housing costs or to provide homes for the elderly, instead of housing being used as a speculative reserve for the retirement provisions of pension funds.
This would counter inflation in the capital market, leading to stability and predictability rather than bubbles and uncertainty.
Jonathan Keller
It is important to prevent a house from becoming a speculative and profit-seeking property.
