Property prices are rising fast in Eastern Europe according to Financial Times:

...property prices in Riga, the Latvian capital, surged by 45.3% in the year to June, following on from a rise of 73.5% in the preceding year, with growth also buoyant in Bulgaria and Estonia. Mr. Bailey [head of residential research at Knight Frank] attributed this to a "levelling up" of prices across Europe, particularly in the former eastern bloc nations that have joined the European Union. "Wage inflation, growing prosperity and access to less constrained mortgage finance have all contributed to rapidly rising prices," he said.

The same transformation could occur wherever property rights are dim and mortgage rates are high. I am thinking of Jamaica, Lebanon, Mexico, Iraq and many, many other places around the globe. Dollarize (or Euro-ize) the economy, offer subsidized mortgages, low property and capital gains taxes for houses, no rent control and put home improvement shows on TV and we will have a global home boom. These are sitting assets that can be taxed and repossessed. They create a home ownership culture, security of a locked door and a place to hang mosquito netting. $30,000 of cinder block housing for every 4th person on the globe would be $45T. This is the head end of the promise of capitalism with liquid lending.

Sam, the fundamental key here is enforceable title in a transparent court system. Many countries don't even have a basic land survey done - - which is getting far cheaper thanks to GPS. But the best title in the world is useless if the judge is the plaintiff's cousin and the recusal laws are a fiction.

We've had secure title for so long we take it for granted. But it's still not a reality in much of the world. The poorer part, by coincidence.

Yep, rule of law is one of the things that goes with joining the EU. We should open up membership in the US.

Jim Bennett is spot on.

Hernando de Soto is the author who's book (Mystery of Capital) first explained this to me in a cogent manner.

The recorder of deeds and the county clerk may well be the great unheralded defenders of the free market.

Bill,
you forgot honest surveyors. Easily "moved" property lines can cause real havoc.

Sounds to me like $20K spent in the old Iron Curtain countries for sheetrock and paint and shrubs would bring a good profit.

In America, the FHA 30 year mortgage led the way.

I recall reading that 100 years ago, no private lender would ever even consider making a low down payment 30 year mortgage.

If everyone owns capital, they will be capitalists and support capitalism. But if we fail to protect the less bright capitalists they will be fleeced (predatory mortgage lending for example) and then they will oppose capitalism. Strong consumer protection increases sales as it increases a buyer's sense of security.

de Soto writes that in the 3rd world a buyer must examine every animal to be assured he is not being cheated. Very inefficient.

With the US Justice Department putting people in prison for selling diseased cattle as Grade A, a trader can buy or sell a million head of cattle by wiggling a finger, confident that he has recourse in the event of fraud.

Same with Enron and Arthur Anderson. Let that become commonplace and folks will squirrel cash in their mattress rather than on Wall Street. And that is very inefficient.

Honest surveyors? Absolutely. And legal recourse for moved lines.

Interesting stuff that becomes VERY interesting when we start thinking about lunar property rights and lunar surveyors, etc . . .

Bill:

Property is not capital. Property is real property is real estate, and in return for owning it you either receive rent or you get to live on it rent-free. And it might appreciate and you will be able to sell it for more than you paid. Capital is money you invest in a business concern to get a profit or to increase in stock value that can be resold.

I'm sure you know this already, but I just want to point out to the lurkers that communism may feel good in theory, except for the fact that it doesn't work for the reasons mentioned by the previous posters.

Dan, since you can make a loan using property as collateral, that transforms property into capital.

There are various ways to capitalize houses. The construction company can have stock, but the typical way is to have a federally guaranteed loan or a loan pooled into a mortgage backed security. Where there is no capitalization, buyers need the money first, then can buy the house. With capitalization, people can buy the house and pay over time and there is a thick market for resale.

If all $55T a year in income in the world were fully capitalized at a 5% interest rate, there would be about $1.1 quadrillion dollars in securities that represents. They could be stock, bonds, futures, options, derivatives, or other contracts. The per capita wealth would be about $180k per person. Most of the uncapitalized wealth is human capital. Most people can't borrow $200k for a spaceflight because they could declare bankruptcy the day after the flight and not pay. That's even if they make $50k/year and can easily borrow $200k for a house.