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Comment by drtillberg | Hacker News Reader

It's a problem caused by 20 years of monetary stimulus and 40 years of complete freedom by central banks and governments to manage the money supply. Monetary policy has bid up leveraged assets like real estate many times over. Supply follows money, not people, and money has been concentrated in the hands of fewer people. Any intelligent conversation about this needs to include monetary policy.

When people live in little piggy banks....

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I'm not sure why you're downvoted, but I think that this nails the biggest reason for runaway inflation in housing prices. When money supply is cheap, asset prices will be bid up. The only people who can afford the assets and profit from further increases in their prices are those with the means... in other words, the rich get richer while others are left behind.

It's downvoted because it puts the cart before the horse. Monetary policy intervention interferes with the market by forcing interbank interest rates to be higher than they would be in a free market. As any banker will tell you the price of interbank reserves in a free market is zero - as there are more than are required to clear the banking system. In a free market asset prices are naturally determined by the last creditworthy person prepared to pay the current price of money who visits a bank. Which will be higher than zero because ordinary people have no access to the interbank, and therefore the bank can put their risk and cost mark up on the price of money.

You can hardly argue against rent controls but for interest rate controls. Why favour bankers over property occupiers?

Oh, a simple misunderstanding! I was arguing against the central bank controls on interest rates that have so distorted to the property market. Glad we cleared that up!

In fact, my post said nothing about interest rates currently being set on a free-market basis, because the whole point was that central bank interventions are distorting and setting those rates in a way that generates huge inflation in the property markets that is then treated as insignificant for purposes of calculating inflation statistics. Property inflation --> Rent inflation. Concentration of wealth + Rent inflation --> Rent control | Homelessness.

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