Real Estate Financing Is The Problem, Not Bitcoin – Bitcoin Magazine
This is an opinion editorial by Jeremy, a counselor for Escape to El Salvador, which is a community of professionals helping expats obtain residency and citizenship in El Salvador.
In recent years, there has been a lot of fuss about so-called “crypto-colonizers” moving to developing countries and taking advantage of affordable housing and other amenities provided by disadvantaged locals. The Washington Post, Business Insider and even the New York Times reported from Puerto Rico, throwing around terms like “gentrification” and associating this new class of wealthy, global entrepreneurs with words like “utopian”, “idealist” and leaner “evangelist” .
Now, I’m not here to defend any particular person or how they made their money, or even what they plan to do with it. Instead, I want to drill into one, very specific basis for this type of accusation: that the rise in prices is due to demand. Superficially, that is partially true. As anyone who has taken an intro course in economics can tell you, prices are set by the law of supply and demand. Each of these can in turn be influenced by a number of factors. In this article I want to focus completely on real estate.
Property has a supply problem: They are not making more land, and everything is already taken. Except for a few eccentric efforts to raise islands from the sea, if you want a place to live, you have to buy it or rent it from someone. The seller is going to decide how much they are willing to accept for it based on a number of factors: primarily the location, but also the use and quality of the improvements. You can break this down further and consider the view, the legal jurisdiction, the applicable tax regime, the soil quality of the land, its ease of access, perhaps whether it contains rare or useful minerals or other natural resources and finally, whether there may be a conservation or historical element in the valuation.
On the demand side of the equation, there are just as many nuances. A buyer will decide how much they are willing to pay by considering all of the above, plus an additional truth: You have to live somewhere. Not choosing a location isn’t a realistic strategy unless the ambiance of a freeway bridge or the unique aroma of the dry space behind the dumpster in the downtown alley really speaks to you. There is an additional factor weighing heavily on both buyer and seller that has caused property prices to rise more than any other: financialisation.
As a thought experiment, imagine what the price of a house would be if its value depended entirely on its use as a house. In other words, how much would you be willing to pay to keep the rain from dripping on your head while you sleep, or to have a safe place to raise a family? How much do the materials in the construction contribute to the price? Size is important, as well as aesthetics and so on, but you will probably agree that the price charged for most homes greatly exceeds the utility value solely as a house. The rest of the price has more to do with its utility as a financial asset. In fact, it may be the primary driver of price in most real estate markets today. So how did we get here?
Our current global economy is designed around a simple idea: By slowing the erosion of money’s value through inflation, you stimulate investment and growth. Sounds easy, right? The problem is that most people are not savvy enough to invest in a complex marketplace, so investing in real estate becomes a proxy for long-term wealth. This type of system is inherently unstable given the fate of every fiat currency that has ever been tried. Ultimately, each issuer of currency gives in to the desire to print ever-increasing amounts, leading to hyperinflation. Asset prices rise in line with the supply of money and everything ends up being too expensive to buy towards the end of the cycle.
If it wasn’t obvious, we are at the end of the cycle. Prices of everything are hitting record highs, and it’s human nature to want to blame the fact that home ownership, which once seemed like an attainable goal, is now a distant fantasy. If you look around and the only people who seem to be able to afford the home you wish you had are the nouveau riche, then it might seem convenient to blame them – even more so if they’re obviously terrible people. But, and this is the important part: They are not to blame for the rising prices. Blaming them for the unaffordability of the market is like blaming a baby for its pregnancy. Scammers are not the disease, they are a symptom.
So now that you’re thoroughly depressed, you might be asking, “What can we do about it?” The answer is simple, although it may seem counterintuitive to the disadvantaged locals. The answer is to adopt bitcoin as quickly as you can. Switch yourself, your family, your neighborhood and your country to a bitcoin standard without delay. Only by taking the ability to print money out of the hands of the ruling class can we put an end to the hyperinflationary death spiral we are now experiencing. If you’re in a developing country, one of the best ways to get started on this is to reach out to the bitcoin immigrant you may have been quick to blame. Realize that if they’re using bitcoin on a house in your community, for example, that’s a great way to get bitcoin flowing through the local economy, and that’s what adoption looks like.
There is no shortcut here, and the transition will be bumpy. But unless we switch to a deflationary currency that creates no incentive to finance assets such as property, the situation will get worse.
This is a guest post by Jeremy. Opinions expressed are entirely their own and do not necessarily reflect the opinions of BTC Inc. or Bitcoin Magazine.
