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Strategies & Market Trends : Booms, Busts, and Recoveries
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To: Maurice Winn who wrote (62627)4/24/2005 10:34:45 AM
From: Moominoid  Read Replies (1) of 74559
 
Somebody who owns a sheep farm by the sea or somewhere nice subdivides their property, sells a section to overseas rich person who wants a nice base here. Goes to local cafe and pays our daughter to serve Eggs Benedict, with salmon and spinach, with a flat white coffee.

Yes the new population introduces real new economic activity. Subdivision of the property and building a new house is also real activity.

Said seller says, "Yippee!" and phones the Lexus supplier overseas who ships another swanky new vehicle to them. Seller also buys a swanky new CDMA cyberphone, Made in Korea. Also books a ticket on Emirates nice new aircraft and flies for a holiday to Europe.

These are imports and reduce the GDP (though there are domestic services attached to each).

But all this is mixing up the original issue which was purely house prices increasing.

Let's say suddenly everyone decides that Troy NY is the coolest place to live (Scorcese makes another movie here or something). House prices rise from $100k currently to $400k as out of towners swarm in and buy up the property. Former Troy homeowners become wealthier because they are overweight in their allocation of assets to Troy residential property. At a national level though all that has happened is some houses are now relatively more expensive compared to all goods services and assets in the economy. Therefore, this capital gain is inflation at the national level not real activity.

Now in the real world that influx of homebuyers will be accompanied by remodeling, redecorating (and in this town outright rebuilding of derelict buildings). To the extent that that happens that is an increase in real wealth.
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