Question

Hi, I would like to know the answer in the following book.

Investments. 11 Edition, from chapter 1 - Problem Sets: 6 question:

Q6) Suppose housing prices across the world double.

a. Is society any richer for the change?

b. Are homeowners wealthier?

C. Can you reconcile your answers to (a) and (b)? Is anyone worse off as a result of the change?

I don't have any details other than my textbook. Please let me know what else do you need?

Answer 1

a. No, society isn't any wealthier for the change as the wealth of the society is determined by real assets. Lodging costs multiplying over the world implies that houses are currently worth all the more monetarily, yet it doesn't imply that there are presently more houses or better houses on the planet. Merely the price of houses getting doubled doesn't create any real assets, therefore society is not any richer for the price change.

b. Yes, the homeowners aare wealthier in a way that the assets owned by them now have a greater value. They would also get a higher rent for the houses they own and higher lease for the houses let out on lease.

c. Yes, the results can be reconciled as the society as a whole do not benefit. No wealth is created but just the wealth of a part of a society increases, i.e., the houseowners. But no wealth or asset is created.

Yes, the part of society that do not own a house are the ones who are worseoff as what they could have bought at $100 yesterday costs $200 today.