[IkmoIkmo]

In virtually all countries, the size of the mortgage allowed is based on capacity to carry debt, by law or by market practice, and expressed as the percentage of monthly income that may be used on a mortgage, which is capped.

That means increasing interest rates and halving the payback time will massively increase monthly cost to carry debt / monthly mortgage payments.

Given the cap, that means people can borrow much less. Their ability to buy or afford a home does not improve. Why would that be preferable?

What you'll also achieve is that those with cash now will have a big advantage over those without cash, but with a stable income, who're willing to work for 30 years, because mortgage-based buying becomes less interesting.

Lastly, you'll make sure that much less capital flows to real estate, which means it's less interesting to build more of it, reducing the long-term supply, and exacerbating the housing shortages you see in many countries.

And you're doing all this, artificially. Set interest rates above market rates. Set loan terms to max 15 years, while a 25 year old will need to live somewhere after 40, too, and is fully capable to take on a loan at 41, or 51, or beyond.

There's simply no easy solutions to this issue. This idea that messing with interest rates will magically solve things is myopic.

What I will agree with is this: make owning or renting fiscally neutral. In many countries, home owners get subsidies, tax breaks, interest rate deductions, while renters don't. That must be stopped.

Second, we need to consider government policy to deter hyper-concentration, i.e., in many countries, the 5% top-1 tier cities get 25% of the investments/attention/projects/jobs/universities/infrastructure. That leads to massive demand in a few spots, and a brain/capital drain from the rest of the country. Because land is finite, it makes no sense to concentrate all economic activity in one or a few cities. Cities are efficient and necessary, but tier-2 and tier-3 cities need more attention to spread people around more. There's actually plenty of housing, but some of it costs $500 per square foot, and some $50. That must be balanced more.

Third, national government should exert its power more over local governments to be more accommodating, e.g. when it comes to zoning, building laws, density etc. Local government is often captured by existing home owners, which must be heard, but whose voice is currently overpowering generations of future citizens who outnumber them and aren't being accommodated. You have an industry captured by NIMBYism, and local government has no governance model to give future citizens a voice. In a municipality with 60% single family owner-occupied homes who wish to keep construction low, vs 30% long-term renters and 20% transient renters, and 500% future renters, who wish construction to increase, the current democratic governance model keeps favouring the 60% SFH owner-occupiers. But it's not necessarily a net benefit to society, or the most democratic outcome.

[jariel]

"Given the cap, that means people can borrow much less. Their ability to buy or afford a home does not improve. Why would that be preferable?"

House prices are a function of interest rates.

As interest rates lower, house prices skyrocket because 'everyone can afford to borrow more' and are pushed into doing so because 'housing is a requirement'.

Ergo - home prices, as a function of income, increase dramatically with low interest rates.

By capping mortgage terms, and keeping rates reasonable (NOT too low) and steady, it means that 1) housing ticket prices are lower 2) rents (i.e. those not benefiting from leverage) are lower, 3) the size of of the real economy being dumped into to unproductive assets is smaller.

"Lastly, you'll make sure that much less capital flows to real estate" - kind of, but not really - you are mixing 'homes' with 'real estate'. Those are different things. When homes get built, there is value added, the 'land part' just economic rent, it's a net neutral exercise. If the demand is there for homes, the homes will get built. The frothiness and excess profits won't be quite as nice, but they will be built because money can be made.

"And you're doing all this, artificially. "

The entire article is about an 'artificial' move by the government to provide economic incentives to promote affordability.

The ECB (de-facto Danish central bank even though they have their own) 'artificially intevenes' on the basis of asset prices.

"Second, we need to consider government policy to deter hyper-concentration"

Yes! And providing home-buying incentives will benefit those with the most capital to leverage, in the biggest cities - and it will 'punish' renters (higher prices) and leave non-urban dwellers in the lurch as their city dwelling peers gain massive personal wealth over their artificial leverage.

[IkmoIkmo]

> housing ticket prices are lower

So? Increasing interest rates lowers prices, it doesn't improve affordability. At the end of the day real estate is paid for by virtually everyone on a time-basis, whether you rent the home or rent the money to buy the home (mortgage), you're paying for the time you use it.

If you increase interest rates, you're simply artificially increasing the costs to rent the money to buy a home. The only reason prices go down is because you're making it more expensive and reducing people's ability to afford a certain amount of loans. It's not magically becoming cheaper, and it's certainly not magically becoming more affordable.

> rents (i.e. those not benefiting from leverage) are lower

Says who? Try increasing the interest rates in any other industry and see what happens. Raise interest rates for car rental companies, renting a car will not become cheaper. Raise the interest rate for bakeries, the bread will not become cheaper. Try lowering the amortisation length for any organisation's loans, their monthly costs will increase, and if they're selling/rentingout something (e.g. buying a home with a loan with a shorter amortisation length and renting it out), that price must increase, not drop.

> the size of of the real economy being dumped into to unproductive assets is smaller.

Define unproductive asset... Is food an unproductive asset? Is a car? Is a gym subscription? Is a healthcare service? Why take that perspective?

At the end of the day, housing is a valuable good that people are willing to pay for. If we allocate more money to it, there's a bigger incentive to build more of it. This narrative to paint it as an unproductive asset implies we shouldn't be allocating capital towards it, as if it has no value, and should instead manipulate the prices to drive capital away from a good which the marketplace (i.e. citizens) values

How much housing shortage do you think there'd be if we artificially capped prices at 10% of the current prices, as an extreme example? I'd suspect property development to plummet and housing demand to skyrocket, leading to some lucky few purchasing more than they need at artificially low prices. This idea to manipulate housing prices downwards without addressing the shortage itself doesn't work.

> you are mixing 'homes' with 'real estate'. Those are different things. When homes get built, there is value added, the 'land part' just economic rent, it's a net neutral exercise. If the demand is there for homes, the homes will get built. The frothiness and excess profits won't be quite as nice, but they will be built because money can be made.

What in the world are you talking about? Please take an economics class if you think reducing profits has no bearing on allocation of capital to that sector, or economic activity in a sector.

Just imagine a scenario with interest rates in real estate at 50% or to -50%. If you think there's no change in the willingness or amount of construction, that's a joke. Besides it's not just about building new homes. A ton of capacity is in renovations, adding floors on rooftops, digging out floors under gardens, revamping old offices into housing units etc etc. Low interest rates are absolutely helping drive that.

> The entire article is about an 'artificial' move by the government to provide economic incentives to promote affordability.

What are you talking about, at this point you're literally just making shit up? There's absolutely no word on the government in the article. And the central banks aren't intervening in real estate, they're intervening in interest rates in order to manage inflation, which is their core purpose. Denmark has averaged a sub 1% inflation rate for a decade. If the central banks didn't lower interest rates, you'd see a deflationary cycle. What they're doing is not real estate policy, it's simply a general central bank core responsibility and the government is not involved at all, and certainly not to promote affordability of housing. There's no word on that in the article and saying that 'the entire article' is about that, is total nonsense.