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The oldest economic group still controls the modern economy

Do house-to-house prices resemble bread prices? That is the question recently asked is the leader of a German trade union, which has been embroiled in controversy seizing corporate lease units and put them in the ownership of the people. Many Dutch cities I want to prevent investors from buying affordable housing for rent.

South Korean ruling party won the mayoral election for failing to stop the 90 percent rise in Seoul housing average price. Chinese President Xi Jinping has made affordable housing a major part of its development agenda, to say that the house is “occupied, not imagined”.

We know that house prices go up in many places. But a new study from the McKinsey Global Institute, which calculates the currency of 10 countries representing 60 percent of global revenue (Australia, Canada, China, France, Germany, Japan, Mexico, Sweden, UK and US), has incredible numbers about the amount of money to buy property, and why.

The study, entitled “Rise and Rise of the World Balance Sheet”, looked at real wealth, financial and debt consolidation in families, governments, banks and non-financial institutions. It found that two-thirds of the value was stored in residential, commercial and government buildings as well as real estate. In all digital matters, it seems that bricks and mortar are the new bricks and mortar.

How did that happen? And what are the consequences?

McKinsey’s research found a strong correlation between total home sales and a five-year interest rate. The authors believe that the decline in interest rates has significantly helped to raise prices of all kinds, but especially commercial prices. Inadequate space, land redistribution issues and over-managed housing markets also contributed to rising prices. As a result, house prices have tripled in at least 10 countries.

What is more is the stress. Previously, commodity prices have now risen by about 50 percent more than they have been in the long run. Valuation and GDP traditionally move in line on a global scale, with international divisions. Now, wealth and size are not completely compatible. This, of course, is the cause of much public outcry today. Affordable housing in particular has been the cry of millennials who can’t afford to buy a home and start a family like the previous generation did.

This, in turn, causes the storm to get worse, because they are no longer buying everything you put in the house, either. But it also encourages rising rent, because many people will not be able to afford it. This is in line with the idea that we could be heading into the 1970s stagflation.

Much of the inequality between wealth and growth stems from the high cost of real estate. But another problem is that there is not enough money to move to a more profitable economy. Although the value propositions were about three-quarters of the $ 150tn growth in 2000 to $ 500tn by 2020, savings account for only 28 percent of the increase in the balance sheet.

Since businesses such as construction, industrial equipment, machinery and intangibles are the driving forces behind the harvest and innovation, that is a very serious matter. With the exception of China and Japan, real estate makes up a small portion of the total wealth in 10 countries today more than 20 years ago. In addition, although digital marketing and information technology have grown significantly at the time, the invisible is only 4 percent of its value.

This may be because, as the authors observe, “for many corporate owners, the value of intangible assets declines rapidly due to job loss and competition, even though their profits to the public may be much longer”. It’s just a few games. This study shows that, by subtracting any price reduction by measuring intangible assets over the past 20 years, you can increase its value fourfold (which would justify the prices of technical units that seem to explode).

However, of all the blockchain discussions, cryptocurrency and big data, it is surprising that the vast wealth of the 21st century remains in the oldest category of all things: bricks and mortar. What can we learn from this? First of all, it looks very good that interest rates are low did not do much in business. Second, and most encouraging, major government programs that spend money in the post-Covid era provide new opportunities to experiment and push money into the most profitable sectors, which can bring back wealth and growth to integrate.

Third, affordable housing is the biggest economic crisis right now. Technically driven shifts and increased operational flexibility during the epidemic can reduce stress. Obviously, we need to reconsider the urban segment and promote population growth, as California has already done. We will also need to find ways to levy property taxes based on the amount of money and income we earn, so as not to penalize retirees. Only with home repairs can we organize our global rental.

rana.foroohar@ft.com


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