Sunday, November 20, 2016

How Price is Determined


I came across an interesting comment here, a blog I check in on from time to time, which postulated that:

   "the price of housing . . .  given an endless supply of credit, will tend to find a level where the cost of servicing a loan can be managed by two people working full-time, because that’s what most people in that market are doing." 

Is that another way of saying that the cost of something is the maximum that people are willing to pay with no relation to the cost of the raw materials and labour to produce the product?   I guess so.  If women decided en masse to leave the labour force as in pre-1960's would the price of houses go down?

Who are these 'people'?   Does that include me?  Why does this situation make me feel like the donkey's hind quarter?

I suspect the quote refers to the majority of people or at least a lot of people.   As an individual I carry little consumer heft.    Often there's a cry for government to do something about a situation, such as rapidly escalating real estate prices in some markets.    Government actions are all too often a blunt tool that misses the mark.

Some people resort to renting out a room or two in their home to visitors/travellers/tourists to offset high housing costs.   Does it help?

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