[randomdata]

> When someone buys a $1.5M starter home, that's $1M not available for other investments.

Why do you feel the money disappears? From my perspective, the $1.5M is now in the hands of the seller, who is equally free to invest in other investments.

[zanny]

If you are buying and selling real estate you are de facto wealthy. Money in the hands of the rich is substantially less stimulative to the economy than money in the hands of the poor, because a dollar in a poor mans pocket goes towards real tangible demand for goods and services they want to spend it on, while money in the hands of the rich goes into investment accounts (stocks / loans) and money sinks (like real estate or futures) that are only meant to make more money.

This is the fundamental mechanism of why wealth inequality is bad for everyone. It slows the economy down if you are moving money from consumption into investment and never seeing it come back out (and income trends in the last 30 years / average wealth / income mean vs median all demonstrate that wealth goes to the top and stays there). Loaning that money back out just deflates the wealth of the poor even more, which increases debt, lowers net wealth, and the general availability of credit for small business creation is pretty damn low compared to decades ago, and the success rate of new businesses is awful. This means the money never goes back down the ladder - it gets swallowed up into money markets that move money around to make money while all the profits are just the productivity of the working class siphoned off.

So when working class people are giving larger and larger portions of their income back to the bankers that loaned them the money to buy a house from a real estate baron, that money is dramatically less stimulative going into the bankers investment accounts (be they stocks or <rarely> further loans) than if it were being put into raw consumption by the homeowner.

[joyeuse6701]

I think what you describe is true for the secondary market, but not the primary. Buying real estate and hoping market forces solely will help you generate a return would seem a poor use of money for the purpose of increasing the general quality of life for everyone.

On the other hand, real estate development, turning a barren lot into apartments with amenities, or single family homes, would seem to be productive and helpful, both are investments.

The same is true for investment accounts, secondary market trades in stocks and the like would match your analysis, but not so for IPOs, which presumably is being used for productive things by the company.

[TheOtherHobbes]

But market-based economics doesn't distinguish between those cases. If it's more immediately profitable to speculate, then speculation happens. If it's more immediately profitable to build apartments for the super-rich then apartments for the super-rich will be built. (And there will probably be a bubble in which the apartments remain empty "for investment", followed by a price crash, as numerous cities have discovered.)

What will not happen is affordable housing for the majority of the population.

Simplistic monetary analyses are incredibly bad at estimating social value, and even worse at maximising the returns from network effects that become possible when you allow for the benefits of wider wealth distribution.

[mcguire]

Furthermore, if there is someone with money "just sitting in a bank" they

* they are idiots, because that is a poor use of their resources, and

* the bank is sending it out, so it is economically productive anyway.

[tmnvix]

> the bank is sending it out, so it is economically productive anyway

Even if the bank is just 'sending it out' to someone that is using it for property speculation?

[mcguire]

'lending'

Sorry.

[quickben]

Until a recession hits and they are on a shopping spree.

There is a reason why hedge funds are slowly gaining cash positions lately.