Tuesday, June 19, 2012

Economy: Sleeping Places Instead Of Working Places

What separates rich nations form the poor ones? Recently I found an interesting statistics (marginalrevolution.com). It compares ownership of homes in different European nations. The statistics show that richer nations have a much lower home owner ship (in percentage of the population) than the poorer ones: Switzerland has 44.3% and Germany 53.2%. But Romania has 97.5%, Croatia, 90.1% and Slovakia, 90.0%.

The result doesn´t surprise me. Investing in homes is not productive, not at all!. If you want to earn income in the future and expand your wealth you have to invest in capital like factories, infrastructure (airports, railways, networks et al.), machines, software and human capital (education). Investing in capital generates income in the future. Factories & machines produce goods, software helps organizing & delivering production plus reducing costs. And the more human capital (skills & knowledge) you have, the more you can produce.

Investment in homes instead produces nothing. Homes are just consumer goods like holiday travel or ice cream.  Nations which consume less money for building homes have more money to invest in productive capital.

I reckon that governments who are fostering homeownership are poorly advised. They promote sleeping places, not working places. And the U.S. politicians who for years promoted homeownership where partly responsible for the housing bubble which caused partly the housing bust and partly the mess on the financial markets.

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