Denmark offers homeowners 20-year loans at a fixed interest rate of zero

I may be tired or dumb, but your argument sounds circular to me. Of course the ECB won't insist there is no inflation if they themselves have defined housing to not be included in the definition they use to measure inflation. This doesn't mean that the parent commentator is wrong nor does it imply that ECB is correct in their definition. For most people, housing is a significant cost in day to day life, and will of course be felt as inflation, regardless of how it's defined and measured in monetary policy.

If it were up to me, housing should also be included in the definition of inflation. That would be a good way to lay bare the downsides with an aggressively expanding monetary policy.

Well if house prices have indeed doubled in 10 years then that means inflation during that period was about 7.2%, not 2% as they claim. Saying inflation is 2% instead of 7% can be seen as "insisting there's no inflation".

I.e. the statement was a bit of hyperbole to indicate that the ECB is hiding or misrepresenting the real rate of inflation.

And without more detailed info, hiding/excluding inflation increases in one of the biggest expenses that people have to account for in their daily life seems like confusion of the highest order.

> it does not take into account owner-occupied housing (OOH) prices

It does however take into account rental prices, which exceed owner-occupied housing costs. So the idea that housing cost inflation is fully absent from EU inflation numbers (not you that's saying it, but sometimes implied in various discussions) isn't quite true, either.

Housing costs as a percentage of income for owner-occupiers hasn't risen all that much due to the low interest rates, and is below peaks we saw in the past. Even in nominal figures, due to lower rates, monthly payments are lower too (ceteris paribus). I don't think including OOH costs would massively increase inflation the way people think, at least not if looked at from a cost-perspective. (i.e., interest, maintenance, taxes, hoa etc).

For example, the total payment on a 300k home with 3.5% rates (like the US) vs 0% rates (like Denmark) is 485k vs 300k. That means in the US you could bid 60% more in a world where interest rates dropped to 0% overnight, while having no change in your total costs. That's what's happening in much of Europe: home prices rising purely due to lower interest rates, without necessarily increasing monthly housing costs, for owner-occupiers.

For renters, different story, but that's included in the inflation figures already.

I think there might be two things going on here: one is a rise in various forms of social inequality, between generations, between people living in tier one cities and smaller cities or towns, between workers in certain industries and the rest. I tend to think this is bad, but I don't think it's related to interest rates.

The other is the culmination of a fifty-year process set in motion when Western economies went from gold-backed currency to fiat currency, and then from political control of currency to independent Central Banks. During this period both inflation and interest rate have moved monotonically downwards, essentially both to zero.

What if you assume that this state of affairs is strange because new, but perfectly benign, and will last indefinitely? It's absolutely true that those people who bought housing and other assets when rates were 10% have profited from a huge windfall. However, it's a one-off windfall. They simply got a discount, because 20/30/40 years ago, borrowing long term to pay cash was hugely burdensome. Today's homebuyers will buy assets at prices which reflect low interest rates, and they will pay low interest rates on their loans. As young workers, they might actually be better off in the long run. In a long term regime of zero rates, more of society's wealth is going to producers (and risk-takers), less is going to people who just hoard cash.

You might think it's nice for society to do something to correct this one-off inequality. Maybe so, but it's not fundamentally different to the other inequalities which exist. In particular, it's unclear why either artificially raising rates or artificially raising inflation are the solution. Neither of these are particularly effective in helping people who have got the short end of the stick. Both benefit some groups of rich people and some groups of poor people, and harm some other groups. There are much better solutions which can be pursued by governments directly without political interference in currencies.

Of course the type of person (job, family status, education level) who could buy a house in Berlin or London in the 1990's could not buy that same house today. You can either say 'too bad, you were out competed', or you can try to do something about it: pay teachers and social workers more, build more houses, make smaller cities more desirable to live in, provide better training and career opportunities etc. Blaming this on the dubious idea that cash in the bank should accrue 8% interest per year lets governments off the hook for actually solving the problems, and just advocates a different set of inequalities and broken incentives.

The average price of existing houses in the Netherlands increased by 55% since 2013.

Source: https://www.cbs.nl/en-gb/news/2020/52/house-prices-almost-9-...

Case in point : I owned a 300k house with my ex, we had a variable Euribor mortage taken out in 2004. With the Euribor at zero or below, the actual rate was close to 0.5%. Roughly translated to about €200 a month.

Now I am renting, a third of the space, for about three times the money ( maybe even more ).

Berlin is not a normal European capital in almost every way. Look at Frankfurt (financial capital of Germany/EU) or Munich (capital of Bavaria) if you want to see how Berlin would be if it were "normal". Then you will find stuff like this [0].

[0]: https://www.ubs.com/global/en/media/display-page-ndp/en-2020...

10 years ago was the peak of the housing bubble collapse (or just after), so the price of houses was depressed for a while.

That said, housing prices have gone up by ridiculous amounts since then, in part thanks to economic recovery, in part due to low mortgage interest rates, and in part (linked) due to low savings account rates. Better to put that money in real estate (and more risky investments on the stock market) than let it wither in a savings account.

But hey, for a while a few people made a lot of money.

Berlin isn't representative. It has comparatively and surprisingly low prices on housing.

Don't know if prices doubled, but it is increasingly difficult for younger people to acquire a home.

People said the Euro helped Germany, and maybe that is correct, but that would be restricted to exporters. For almost everyone else it was a net loss.

Electronics got pretty cheap I guess...

German housing is a litle different, as many prefer to rent, so less demand for beeing an owner.

The salaries you're eligible for offset some of it, but there are a lot of people that have to get by on minimum wage in the big cities as well.

Instead of making mortgages more attractive, I think governments should increase minimum wage. If they do a correction to match up with inflation (and cost of living, since the two don't seem to align), suddenly minimum wage will jump to €30/hour.

Why do low interest rates cause high rents? High house prices sure, but why does it affect rents?

You prefer to live in Copenhagen than the part of Europe you come from, for the higher salaries among other reasons. Probably lots of other people share your preference. Doesn't this suffice to explain why rents are much higher in Copenhagen than in your home region?

Given that the gold price has increased by a factor of 8 in the last 20 years it's hard to see how that could be true. Even if it happens that there's an equivalence between today and 1450, a shoemaker in 2000 would be earning 8 times more.

EDIT: To put it another way, over the last 20 years the Dollar, Euro and Pound have all approximately averaged out to their target 2% inflation rate. Prices in gold terms have averaged to 9% deflation per year. Since 9 > 2, gold is less stable than modern fiat currencies.

Not sure shoemaker is a good example. Wouldn't that today be Nike, Adidas, huge corporations and not individuals?

An individual shoemaker today is probably in the luxury business.

>apparently a good thing.

For a very loose sense of apparent. It's heavily debated, and there's no empirical evidence of greater growth in countries with negative rates, in fact countries with negative rates are generally experiencing lower rates of growth than they were with high rates, although it's hard to disentangle correlation and causation here.

Any additional reading on this that you can link/refer to that gave you that realization?

> Any amount of belief I had that I understand any of this has evaporated when I learned that negative interest rates are not only a thing, but also a thing we may all enjoy soon enough, and that they're apparently a good thing.

As someone mentioned before, their is far more to be discussed on the matter, but be under no illusion: 0 to negative % interest rates are a disaster waiting to happen.

When savers are punished for their otherwise prudent behaviour for a rainy day, mainly because central banks are increasing the monetary supply to offset the lack of activity in M1 and M2 figures that are supposed to denote a healthy economy but do so in headlong manner, they are forcing people to spend money they don't have which in turn increases consumption rates (yet another critical metric in their calculus) and will create the all too common situation in which they cannot afford to not to spend it as it loses value (purchasing power) the longer you hold it in fiat: for context this is also why most cannot afford to have one unexpected expense and it ruins them financially as people as well as companies are looking for more riskier ways to hedger the depreciation to offset the lack of interest rates.

And this applies to business and banks, as well as the citizenry.

All of the EU technocrats are just doing the same thing the US Fedesral reserve has has been doing but from a less vantaged position since they do not have World reserve currency status, and despite their large geographical (in and outside of the Schengen Zone) EU pact footprint are still very reliant on Chinese imports and requires them to play the 'depreciate your currency' game of Russian Roulette to remain competitive in the export market and keep up with the machinations with the Yuan, USD, Yen, and now even the CHF!

So to suffice it to say, no your feeling of bewilderment is not wrong, but your faith in these technocrat's fiscal policy requires far more scrutiny than you've given it because actually this is a disaster waiting to happen--they've already inflated the housing Market in N. America in some place to levels above where they were in 2007 before the crisis as a result of cheap money and lower interest rates. I think most people understand this in a latent manner but cannot understand why it is as the lack the understanding much less the time and resolve to look into it.

The US stock market is at all time highs in the middle of a Global pandemic, recession and more and more people are out of work. None of this makes any sense, and Corporations get more bail out money especially in relation to the citizenry so its very perplexing, but it has to be said that Central banks can only do this because so much of the World is entirely ignorant on financial and fiscal matters, and in my opinion is purposely done and neglected in most formal education (and I include University as I've sat in lower division econ classes and had to walk out due to the absurdity) unless you're a masochist that is willing to put yourself through the immense pain of trying to understand it.

But once you get to the Naked short selling, Re-hypothecation part and then compare it how much unfunded liabilities exists much of it as debt on blance sheets in the derivatives markets (yet another bizarro World situation) all over the World you start to realize that its the most evil, disastrous casino level ponzi scheme imaginable that has so many dire consequences for everyone except those created it as they ALWAYS come out on top in the end.

In short: the fiat monetary system has been in a zombie state for over 100 years now and requires constant machinations (negative % rates are just one) to keep it propped to give it the illusion it 'works' which opens the door for banksters and other unscrupulous actors to game the system in their favour for immense short term gain to the detriment of the rest of us in these ever more severe boom and bust cycles.

We should at least have the option to opt-out. I'm so much less worried about the future because of Bitcoin than I was even in 2007 as we were starting to head into the 2008 crisis where my anxiety levels were through the roof for years and which messed up my emotional, mental and physical health pretty badly to be honest.

It’s the same in the US. Prices in vast areas are stagnant, but some areas skyrocketed. It’s just an exacerbation of the growing wealth/income divide.

"Given the cap, that means people can borrow much less. Their ability to buy or afford a home does not improve. Why would that be preferable?"

House prices are a function of interest rates.

As interest rates lower, house prices skyrocket because 'everyone can afford to borrow more' and are pushed into doing so because 'housing is a requirement'.

Ergo - home prices, as a function of income, increase dramatically with low interest rates.

By capping mortgage terms, and keeping rates reasonable (NOT too low) and steady, it means that 1) housing ticket prices are lower 2) rents (i.e. those not benefiting from leverage) are lower, 3) the size of of the real economy being dumped into to unproductive assets is smaller.

"Lastly, you'll make sure that much less capital flows to real estate" - kind of, but not really - you are mixing 'homes' with 'real estate'. Those are different things. When homes get built, there is value added, the 'land part' just economic rent, it's a net neutral exercise. If the demand is there for homes, the homes will get built. The frothiness and excess profits won't be quite as nice, but they will be built because money can be made.

"And you're doing all this, artificially. "

The entire article is about an 'artificial' move by the government to provide economic incentives to promote affordability.

The ECB (de-facto Danish central bank even though they have their own) 'artificially intevenes' on the basis of asset prices.

"Second, we need to consider government policy to deter hyper-concentration"

Yes! And providing home-buying incentives will benefit those with the most capital to leverage, in the biggest cities - and it will 'punish' renters (higher prices) and leave non-urban dwellers in the lurch as their city dwelling peers gain massive personal wealth over their artificial leverage.

Downward pressure and stability margins have been added recently by forcing people to amortize their loans, seemed to cool the market for a year or so until continuing to increase.

Loans above 70% of value needs to be amortized by 2% per year.

Loans above 50% of value needs to be amortized by 1% per year.

If your house loan is more than 4.5 times your yearly income, regardless of the percentage, then you need to amortize another 1% per year until below it.

This has of course made it even harder for young people to enter the market, but it seems to make for an overall more healthy long-term market in the current debt climate.

For many the hardest part is the by law required 15% down payment, this can be financed by private loans but that comes with it's own catches. Many instead end up relying on parents who has ridden the wave taking out a loan on their home, if you are fortunate enough to have home owning parents.

Interesting you drew ask whether young can afford anything when he said he pays less than his parents for 3x the space.

Interest rates going down doesn't magically push prices up. Prices go up because the interest rates reducing is reducing monthly costs, which makes a euro of housing more affordable and thereby allowing you to bid more for it in the marketplace.

I don't want to be the spoilsport, but yes, they very much can and it's not even that difficult.

Case in point: I moved to Finland as an immigrant 9 years ago, with nothing but a backpack, girlfriend and $12k in my bank account. Within 7 years, we paid down the mortgage for 100 m2 house in the capital area, while raising two children, with one above average and one below average income. And I don't feel like we were materially deprived in any way.

I think the main culprit is couples settling down way too late in their lives. Instead of settling down at the age of ~25 and combining two incomes to pay off the mortgage principle, we have two adults, each paying ~$700/month rents. When they finally move together at the age of ~30, that's almost $100k that went down the drain. The baby-boomer generation used to move together at even earlier ages, 19-22.