3 thoughts on “Why Governments Love Building”

  1. – Housing DOES provide a “Double Whammy” for the economy but NOT in the field of credit/debt. The word “Economy” is a bit misplaced at this point. Building & Housing is so loved because housing shows up twice in a thing called “GDP” and how GDP is being calculated. It shows up once in GDP when those houses are built and once when those buildings have been sold, occupied and/or rented out. There is the “Double Whammy” Joe Wilkes is talking about.
    – And this is precisely ONE (MAJOR) reason why a number of economists do question the validity of the entire concept/composition of that thing called GDP.

  2. – Let me give an example with real numbers:
    – Let’s assume a builder borrows say A$ 700,000 to build a unit/house. (Point A) After the house being built, this builder sells this house to a Household who takes out a loan/mortgage of A$ 700,000 as well to buy that one house. Then that Household gives the builder that A$ 700,000 to buy the house. Now the builder receives that A$ 700,000 and can pay back his A$ 700,000 loan to the bank. (point B).
    – First the total amount of debt is A$ 700,000 (point A, see above) but at point B the total amount of debt is & remains at A$ 700,000 !!! Where is the “Double CREDIT Whammy” ???

  3. – I always learn something when I watch the interviews from DFA with Mr. Joe Wilkes. But in this interview he makes a mistake. He talks about a “Double CREDIT Whammy” and there he completely misses one very important point. Because there is no “Double Credit Whammy”. There is only one “Credit Whammy”.
    – Let me explain: A building company that builds one (or more) house(s), unit(s) – in general – needs financing. This company needs a loan from the bank to buy construction material, hire subcontracters, tradies, etc. etc. When the construction of this/these unit(s)/house(s) has ended then the (building) company hopes to sell this/these unit(s)/house(s) to a family/Household. Units & houses are – in general – (very) expensive and that is why this family/Household needs a loan/mortgage to be able to afford that unit/house. So, the Household borrows money (credit/debt) and buys the unit/house. Here is the thing that Joe Wilkes is overlooking: the builder has received money (from the Household that borrowed that money) and now is able to pay off his debts. So , the total amount of debt doesn’t increase (too (much)) when a Household buys the unit/house with a mortgage. In other words: there is no “Double Credit Whammy”.

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