Not so great if large aspects of your economic growth is tied to the real estate market. Theoretically the value of property is tied in some way to scarcity. If there is an abundance of housing, then there’s not a real reason for property value to mature.
If the rate of maturity is less than the rate of this inflation, then you are no longer creating an investment, you are creating debt. If a property investment group, a private bank, or state bank has over invested too heavily in developing the real estate market… there’s a pretty good chance that it’s going to have a hard time remaining in solvency.
This is an example of why a lot of people accuse the CCP of giving up on communism after the Deng reforms. Satiating the needs of the market too often conflicts with the needs of the people.
Theoretically in a planned economy you would be correct. There’s no motivation too build too many homes, nor is there is there a scarcity of homes. Both scenario are conditions of a capitalist market reacting to the perceived needs of the consumer or the market.
Real estate speculators make too many buildings, property values fall, people can buy homes, and everyone wins. Right? Oh, except for real estate speculators, but who cares about them anyway.
Oh, except for real estate speculators, but who cares about them anyway.
It depends on how involved the private and centralized banks were in the funding. If this is all being funded by the speculators, then yeah no worries. However, if this was funded by state or private loans… the banking system itself may be in danger.
This is how corporate risk aversion works. If you are working with your own private investment and maybe a little capital from the bank, your ass is still on the line. If you are over invested by a huge amount and it’s primarily the banks money…well that’s mainly the banks problem. Now the banks have material motive to keep your financial gamble afloat as it is in reality a shared financial gamble.
The problem with the over housing crisis isn’t simple a real estate issue, it points to some large flaws in how their domestic banking system evaluates risk assessment.
Building hundreds of millions of extra homes isn’t theoretically kosher in either communist or capitalist systems. So we have to evaluate if this is an inherent issue with socialism, or if it’s a problem inherent to their commercial market.
I can’t see a situation in socialism would validate that kinda of surplus, but I can see their commercial market attempting to inflate growth, especially if banks weren’t doing their due diligence.
In a planned economy, it wouldn’t be unexpected to over-build. In fact, it perfectly makes sense, same as we would over produce a small surplus of anything. Housing isn’t ten I to create, and so having reserves ready for use when they’re needed in the future is a good thing. It may be bad from capitalism perspective, because you aren’t getting a great return on the investment yet. But from a planned economy perspective it’s good.
In a planned economy, it wouldn’t be unexpected to over-build. In fact
I wouldn’t call that over building though, and that wouldn’t explain hundreds of millions of extra homes. Building that aren’t being used begin to break down quite rapidly.
Not so great if large aspects of your economic growth is tied to the real estate market. Theoretically the value of property is tied in some way to scarcity. If there is an abundance of housing, then there’s not a real reason for property value to mature.
If the rate of maturity is less than the rate of this inflation, then you are no longer creating an investment, you are creating debt. If a property investment group, a private bank, or state bank has over invested too heavily in developing the real estate market… there’s a pretty good chance that it’s going to have a hard time remaining in solvency.
This is an example of why a lot of people accuse the CCP of giving up on communism after the Deng reforms. Satiating the needs of the market too often conflicts with the needs of the people.
Theoretically in a planned economy you would be correct. There’s no motivation too build too many homes, nor is there is there a scarcity of homes. Both scenario are conditions of a capitalist market reacting to the perceived needs of the consumer or the market.
Real estate speculators make too many buildings, property values fall, people can buy homes, and everyone wins. Right? Oh, except for real estate speculators, but who cares about them anyway.
It depends on how involved the private and centralized banks were in the funding. If this is all being funded by the speculators, then yeah no worries. However, if this was funded by state or private loans… the banking system itself may be in danger.
This is how corporate risk aversion works. If you are working with your own private investment and maybe a little capital from the bank, your ass is still on the line. If you are over invested by a huge amount and it’s primarily the banks money…well that’s mainly the banks problem. Now the banks have material motive to keep your financial gamble afloat as it is in reality a shared financial gamble.
The problem with the over housing crisis isn’t simple a real estate issue, it points to some large flaws in how their domestic banking system evaluates risk assessment.
Building hundreds of millions of extra homes isn’t theoretically kosher in either communist or capitalist systems. So we have to evaluate if this is an inherent issue with socialism, or if it’s a problem inherent to their commercial market.
I can’t see a situation in socialism would validate that kinda of surplus, but I can see their commercial market attempting to inflate growth, especially if banks weren’t doing their due diligence.
In a planned economy, it wouldn’t be unexpected to over-build. In fact, it perfectly makes sense, same as we would over produce a small surplus of anything. Housing isn’t ten I to create, and so having reserves ready for use when they’re needed in the future is a good thing. It may be bad from capitalism perspective, because you aren’t getting a great return on the investment yet. But from a planned economy perspective it’s good.
I wouldn’t call that over building though, and that wouldn’t explain hundreds of millions of extra homes. Building that aren’t being used begin to break down quite rapidly.