Monday, 25 February 2019

Land and bubbleicity

Land exhibits bubbleicity. If the interest rate is 5%, the (risk-adjusted) return on a piece of land is unlikely to rise much above that, because entrepreneurs will bid up the price of the land, lowering the return. However, it is possible for the return on land to fall below the interest rate, far below it, as people bid up the price of land even further. Some property in London has a return of 5%, other property only 1%. People are over-paying for land. Why? Because they expect to be able to sell it to someone else for at least the same price. It exhibits bubbleicity, a permanent bubble. It is being used as a store of value.

No comments:

Post a Comment