It’s a problem when housing speculation drives the cost of houses out of reach of ordinary people who need a place to live. From Charles Hugh Smith at oftwominds.com:
Does anyone really believe that the renunciation of massive, sustained stimulus of speculation in housing would leave housing valuations unchanged because valuations are solely the result of “shortages”?
Let’s begin by stipulating that speculation (i.e. gambling) is part of human nature. The role of regulations and policy is to limit the damage that gambling inevitably inflicts when “sure things” cliff-dive into losses.
In other words, where the speculative frenzy and money flows matters. When the South Sea Bubble expanded circa 1713-1720, this flood tide of speculative capital did not distort the cost of shelter and bread in England; it was limited to a purely financial marketplace of shares in the company. When the bubble imploded in 1720, the losses fell mostly on wealthy investors like Isaac Newton.
The same can be said of the speculative mania of the dot-com era: the bubble and collapse were limited to the tech sector and those participating in the sector and the speculative frenzy. The cost of rent and bread did not double due to the speculative bubble’s inflation or bursting.
In contrast, when speculation floods into shelter / housing, it fatally distorts the cost of housing non-speculators must pay. I say fatally because shelter, along with food, energy and water (the FEW resources), are essential to life. These are not discretionary things we can decide not to have. When the price of essentials soars due to speculation that only rewards the speculators at the expense of non-speculators, the fuse of social disorder is lit.
