Tuesday, February 16, 2010
Also known a bungalow. Ba-dum-ching. I'm here all week.The Times reports, 'RBS will let investors bet on property falls' (link). It's actually been possible to do this through spread-betting for some time already. Perhaps I'm missing something, though, because I don't see the economic benefit in terms of the housing market. (There is always an economic benefit in offering goods and services which consumers want; my question is whether this one will help the housing market.)Some economists have noted that one of the problems with the housing market is that it is not possible to go 'short' housing. That is, in the stock market you can borrow someone else's stock and then sell it. In addition to paying them 'rent' for the stock, you also promise to pay them their dividends, and basically ensure that they don't notice the difference in terms of cashflow. You hope to make your money by buying the stock back at a later date and a cheaper price. This process goes towards making the market more liquid and more efficient, and provides a kind of elegant balance between buyers and sellers. It also relies purely on the existence of a market in the underlying: you don't need to create products to go short (although institutions have done so, to make the process simpler for retail speculators).In housing, you can't do that: who ever heard of borrowing someone's house and selling it again! It doesn't make sense. So unless I'm missing something, this will be a help to people who want to hedge their exposure to house prices (for some reason), but it is not going to do anything to make the housing market more efficient. The only way around that one, I'm afraid, is to reform planning. We could do worse than adopt CentreForum's proposal for a mechanism which would recoup some of the return from planning permission for local communities (link).