<p>That would be really, really bad.</p>

<p>Any house that loses value will be unsellable, and thus virtually worthless.</p>

<p>Most people living in such a house would be prevented from moving. They cannot sell it, since no one wants to buy an overpriced house, and they cannot afford buying another house with their capital already tied up in the current house. </p>

<p>A black market would appear, with people giving money back under the table. "Buy my house for 4M SEK and I'll refund 1M SEK under the table."</p>

<p>I can tell you one thing it won't do. It won't stop prices from ever falling. </p>

CC BY-SA 3.0
2017-03-21T13:16:10.150Z
This is a good answer but I find that the last sentence greatly detracts from it. "It won't stop prices from ever falling." What prices? Official or black market, of a given house or of a general category of houses, etc? I think you need to be clear on this because the official price of a given house would obviously not fall.
Giskard
CC BY-SA 3.0
2017-03-21T14:28:32.200Z
Most who move, move to another house in the same jurisdiction. If some housing broker manages to puzzle together a number of clients so that A can move to B who can move to C who can move to A, then each can add X% to the last price and everyone involved makes big profits since the bank loans are guaranteed risk free and the rate is much lower (negative actually given CPI inflation) than the property enrichment they all enjoy. A majority don't own any house anyway, and many of those who do are retired and will never move again. Their children will enjoy a guaranteed increased inheritance.
LocalFluff
CC BY-SA 3.0
2017-03-21T14:40:47.067Z
@LocalFluff If people are prevented from moving to cheaper housing, then there will be personal bankrupcies and those houses will end up with the banks. So bank loans won't be risk free.
Klas Lindbäck
CC BY-SA 3.0
2017-03-21T14:48:21.840Z
There will remain houses that are cheaper than other houses. What house in Sweden is cheaper today than it was 23 years ago? If no house is allowed to lose in price then housing loans have risk free security (which the bank after a forfeiture is guaranteed to be able to sell with a profit) and no one will lose money when selling her house. Banks will halve their interest rates each time the prices double. That is what has happened for 23 years now. The threat is that it ends, so why not perpetuate status quo with a simple law? Isn't that the safe and conservative way to go?
LocalFluff
CC BY-SA 3.0
2017-03-21T16:23:49.767Z
@LocalFluff "no one will lose money when selling her house" That also includes cases where they can't sell at all.
JAB
CC BY-SA 3.0
2017-03-21T16:59:49.623Z
*(which the bank after a forfeiture is guaranteed to be able to sell with a profit)* - you've only guaranteed that they make their money back IF they sell it. You've not guaranteed that they'll find a buyer at that price. Which is quite likely. See my answer.
pjc50
CC BY-SA 3.0
2017-03-21T19:58:07.870Z
@LocalFluff A banker loans money because he believes he can get the bank's money back, plus interest. So he makes the borrower put up 20% of the price of the house as a down payment, knowing that in case of foreclosure in a down market, he can sell the house at 80% of appraised value and still get his money back.  By making that illegal to do, you just killed the home mortgage market.  And that means no home-improvement loans, which help to bolster home prices. Congratulations! Your economy is dead.
Monty Harder
CC BY-SA 3.0
2017-03-21T21:19:54.977Z
@MontyHarder No no no. The banker gives the borrower the loan for free for 10 years, with the house as security. And 20 years later the banker has a 4 times more valuable house as loan security. +300% profit in case of default, and +400% basis for his 0.8% loan renewal rent. At least that is what has happened. I'm asking about forbidding sales at lower prices, in order to guarantee an eternal continuation of this lifelong bubble. And I cannot prolong this comment-chat anymore, sorry!
LocalFluff
CC BY-SA 3.0
2017-03-21T23:14:02.813Z
@LocalFluff "which the bank after a forfeiture is guaranteed to be able to sell with a profit" - there's your problem, why do you think the bank is guaranteed to be able to sell it with a profit?
Criticize SE actions means ban
CC BY-SA 3.0
2017-03-22T01:38:44.107Z
Surely instead of relying on the stranger being kind enough to give you the 1M SEK promised, just do some 'home improvements' to get the value to $1 more than you bought it for. Improvements such as a decorative statue in the house somewhere, that looks suspiciously like gold bullion.
Scott
CC BY-SA 3.0
2017-03-22T08:38:09.927Z
@immibis Why would a bank ever want to sell any of the empty houses it owns after a customer defaulted on the interest payments? The empty house is a profit on the balance sheet. It's mark-to-market can only keep on increasing. A stronger banking balance sheet helps lowering the interest rates further and drives up housing prices, which just increases the balance sheet ever more.
LocalFluff
CC BY-SA 3.0
2017-03-22T11:03:54.753Z
@LocalFluff The value for the bank of a house is whatever it can be sold for.  If the house can not be sold the value is zero.
Taemyr
CC BY-SA 3.0
2017-03-22T11:25:19.757Z
@KlasLindbäck "Any house that loses value will be unsellable". Why?  Many houses will have been bought many years ago, at prices much lower than their current values.  Even if they lose value, their value may still be much higher than the price at which they were bought.
Adam Bailey
CC BY-SA 3.0
2017-03-22T20:13:28.640Z
@LocalFluff On the balance sheet is not in reality. If I'm the bank, WTF am I supposed to do with this house? I can't use it to pay interest or taxes or make loans. If the balance sheet says I have \$10M of houses but I don't have any cash, then I am going to go out of business. The map is not the territory. Businesses exist to make money, not to put big meaningless numbers on their balance sheets. If the houses cannot be converted into \$10M cash, then it's totally irrelevant whether the balance sheet says \$10 or \$10M or \$999999999999999999999999999999.
Criticize SE actions means ban
CC BY-SA 3.0
2017-03-22T20:15:14.370Z
@LocalFluff also *you're* the one who said the house could be sold for a profit, not me.
Criticize SE actions means ban
CC BY-SA 3.0
2017-03-22T20:48:15.960Z
@Taemyr re: `"If the house can not be sold the value is zero."` - actually, the value is worse than 0 (at least for any owner not living in or renting it). A house has to be maintained and have property taxes paid; for a bank the costs also include having someone manage these toxic assets (I have a friend with this job in the US).
brichins
CC BY-SA 3.0
2017-03-22T22:43:38.637Z
@denesp The official price would fall. You cannot claim a value that you cannot actually sell something for. Otherwise, I could buy a vase and agree to a limitation that I cannot sell it for less than \$1 million and then claim the vase is worth \$1 million. That trick could be used by a company to claim it's not bankrupt. No accounting rules permit that! If you can't actually sell an asset for a price, there are heavy restrictions on your ability to value it for that price.
David Schwartz
CC BY-SA 3.0
2017-03-23T05:42:13.930Z
@DavidSchwartz I see your poinst, but I am assuming if they make a legal change it also applies to the accounting restrictions. Otherwise it is a very half-hearted law. But you are correct, this was not specified.
Giskard
CC BY-SA 3.0
2017-03-23T08:09:47.273Z
@denesp Accounting rules have very important purposes. A rule permitting companies to value things at amounts they could never get for them would cause huge problems. Say a person has a home the law allows him to value at a million dollars but that cannot be sold at all because of the law. Does he qualify for loans? If he owes \$150,000, is he insolvent? Can he use the home to secure a \$650,000 loan? Loopholes in accounting rules cause huge damage when abused.
David Schwartz
CC BY-SA 3.0
2017-03-23T10:51:13.147Z
@DavidSchwartz As do some laws that meddle with the market. I am not disputing your point, just pointing out that if a law says the price is $p$, then the price is $p$. The market may collapse, and there will probably be loopholes. Off: To make a dollar sign you need to type a backslash before the dollar sign, i.e. \\$.
Giskard
CC BY-SA 3.0
2017-03-23T10:57:06.213Z
@denesp My point is that you will never make it work. Everything you do to try to make it work will break something else. If a governmental decrees could easily create large amounts of real value, we'd live in a very different world than the one we live in. The value simply doesn't exist and it can't be made to exist by saying it exists.
David Schwartz
CC BY-SA 3.0
2017-03-23T11:59:49.567Z
Comments are not for extended discussion; this conversation has been [moved to chat](http://chat.stackexchange.com/rooms/55894/discussion-on-answer-by-klas-lindback-a-law-against-selling-any-house-cheaper-th).
Ubiquitous
CC BY-SA 3.0
2017-03-21T12:52:40.900Z
2017-03-21T12:52:40.900Z
Klas Lindbäck
<blockquote>
  <p>And everyone is safe, the crash prevented and everyone will keep making millions simply by borrowing more for risk free "investing" in simply owning ones own house, right?</p>
</blockquote>

<p>It is true, your investment cannot drop in nominal value (not counting inflation,) but <em>it can become totally illiquid</em>, which is worse in many ways.
You see, if a stock drops in value by 5%, I can sell and take the 5% loss, freeing and preserving 95% of my capital.
If a house in your scenario drops in value by even .05%, then I cannot cut my losses.</p>

<p>From a short-term perspective, <em>any loss at all becomes a total loss.</em>
From a long-term perspective, <em>any loss is still magnified</em>, since you can't free your capital for better investments - the opportunity cost is high even if you manage to sell later.
Either way, the risk of real estate investing would rise dramatically.
This will increase the cost of home ownership.</p>

<p>Of course, that's speaking abstractly. 
In reality, houses make up a huge portion of most people's net worth and that's the real danger of illiquidity in the housing market.
<em>Imagine not being able to move, not being able to refinance, only being able to free yourself of your investment by means of a total loss.</em>
That's not going to work for many people. These people will have to rent instead of owning, which will increase demand (and price) for renting.</p>

<p>Once this all settles out, people will no longer consider real estate to be a 'safe' investment, 
although con artists and deceivers may succeed in swindling people for a while.</p>

<p>Tl;Dr</p>

<ul>
<li>The inability to sell a depreciated asset increases the risk of that asset. Increasing risk increases cost, so you'd see home ownership increase in cost as well. That's bad.</li>
<li>Renting would become more attractive by comparison to home ownership, so you'd see demand (and price) rise for renting. That would be very bad for low income families.</li>
<li>Ironically, this law and its fallout might disabuse people of the notion that real estate is a 'safe' or 'guaranteed' investment. That would be good.</li>
</ul>

<p>Finally, the only people that I think will truly benefit are the large companies which would be able to handle the risk of home ownership in this scenario, 
because they will have less competition.</p>

CC BY-SA 3.0
2017-03-21T21:39:17.440Z
You rightly identify that there would be effects on the demand for rented homes.  What about effects on the supply of rented homes?  You need to consider both sides to justify the conclusion that rents would rise.
Adam Bailey
CC BY-SA 3.0
2017-03-21T21:43:18.257Z
How does it really connect, or play out, that an asset could become depreciated if it is impossible to sell it at a depreciated price? If a broker finds (or if they find each other on social media) A, B and C such that A wants to move to B and B to C and C to A, and each of them adds $100,000 to their purchasing prices. It is just a roundabout and everyone involves and the bank all profit from it. No risk for any crash. Wouldn't my suggested law make safe that which is now a fear and a real threat?
LocalFluff
CC BY-SA 3.0
2017-03-21T21:58:55.023Z
@AdamBailey In the short-term, I think prices will rise because the housing market supply is fairly inelastic - you can't just build more houses in a week (even if you can find open plots), and you can't just get people who weren't planning on selling to sell. Perhaps I should have stated that assumption of inelasticity.
In the long-term, I would expect rent to go down some. I would still expect to see an overall increase in rental price, because rental costs are related to home ownership costs, which have been driven up.
Jeutnarg
CC BY-SA 3.0
2017-03-22T00:46:35.093Z
@LocalFluff Depreciation has little/nothing to do with the actual sale of an item. Depreciation means that the value of a tangible asset has decreased. The fact that you cannot legally sell at a depreciated price does not mean that depreciation can't occurr, it just means that **the results of depreciation have changed**. Previously, depreciation meant that, if you wanted to sell, you would get a lower price. Now, depreciation means that you cannot sell it at all. I hope you can see why the second option is worse.
Jeutnarg
CC BY-SA 3.0
2017-03-22T00:48:00.253Z
@LocalFluff 1. ABC switcheroos like you just described are utterly unfeasible. If you cannot see why, then I can only assume that you have never tried to sell a house. If you have and still think that way, then I can only assume that you were unbelievably lucky with your sale.
2. If you raise your price 100K and also pay an additional 100K, then you have earned NOTHING. The bank alone profits, since their fees are now higher.
3. No, your law does not protect the market and makes any downturns far more catastrophic. See my answer or any of the other good answers as to why.
Jeutnarg
CC BY-SA 3.0
2017-03-22T08:46:38.523Z
I'm talking about PRICES here, not VALUES. When did you last hear a macro economist use the word "value"? (At least in its actual meaning). Macro economics is the accounting of simply adding up all the price tags one can find. "Aggregation". The larger the sum of them all is, the better.
LocalFluff
CC BY-SA 3.0
2017-03-22T10:57:47.433Z
@Jeutnarg Total housing supply is fairly inelastic, as you say.  But housing that has been owner-occupied and has become unsellable could become available for rent if no longer required by its owner, eg due to moving, or following death.  So the supply or housing for rent would probably increase.
Adam Bailey
CC BY-SA 3.0
2017-03-22T22:45:45.610Z
@LocalFluff You're correct that scams and tricks of the type you describe might mitigate some of the harm this rule would do. But the cost of having to go through such machinations would significantly drag down the value of real estate.
David Schwartz
CC BY-SA 3.0
2017-03-25T05:55:17.170Z
@LocalFluff Alright. I'll play out your switcheroo game. A pays B \$40000. B pays C \$40000. C pays A \$40000. Technically no money needs to switch hands to pay for this right? That is wrong. We cannot feasibly assume the three houses are identically worth \$40000. Therefore, there is an amount that A had to put forth to make the sale become equal. That is to say, he had to cough up extra money to afford \$40000 in the first place (I'm assuming bartering is illegal when the houses are unequal). Therefore, if A doesn't have the money... they can't move... ever.
user64742
CC BY-SA 3.0
2017-03-21T18:00:30.783Z
2017-03-21T18:00:30.783Z
Jeutnarg
<p>Bursting bubbles don't destroy actual wealth.  Instead, they <em>stop</em> destructive processes which convert actual wealth into imaginary wealth.</p>

<p>Suppose it would cost \$120,000 to build a house that's would be worth \$100,000 in non-bubble conditions,but market conditions in a bubble would cause such a house to sell for \$150,000.  Building a house under such conditions would convert \$120,000 of actual wealth into \$100,000 of actual value plus \$50,000 of imaginary wealth.  If the builder manages to sell the house for \$150,000 that will mean the buyer traded \$150,000 of real wealth for \$100,000 of real value and \$50,000 of imaginary wealth.</p>

<p>As long as the bubble lasts, people can keep passing the imaginary wealth around and pretend it's real wealth, but there's no way to turn such imaginary wealth into real wealth.  The act of building the house will have destroyed \$30,000 of real wealth, and no matter how much higher prices might go in the bubble, total net profit among all buyers and sellers (assuming for simplicity nobody does anything with the house except buy and resell it) will be -$30,000.  Any profit anyone might make buying and selling the house will be offset dollar for dollar by a loss by someone else down the line.</p>

<p>While it may look like bursting bubbles cause people to lose money, the reality is that it's the formation and inflation of bubbles--where it <em>looks</em> like people are making money--that actually destroy wealth.  As the bubble gets bigger, both the amount of imaginary wealth created and the amount of actual wealth destroyed are prone to increase exponentially.  Although the bubble going may protect some market participants from losses, it can only do so at the by causing other market participants to lose even more.</p>

CC BY-SA 3.0
2017-03-24T14:24:36.610Z
@nocomprende: Yup.  The key point is that the *real* wealth disappears while the bubble is growing, so trying to keep prices up will do nothing to protect it.
supercat
CC BY-SA 3.0
2017-03-24T17:04:00.883Z
@nocomprende: I've very seldom seen things described in such terms, but the fundamental problem with bubbles is that they shift resources away from producing things whose value would exceed the production cost, to things whose real value is below the production cost.  Wealth is destroyed the moment the resources are committed to the latter items.  I like the musical chairs analogy; perhaps someone is replacing groups of two ordinary chairs for one fancy-looking one.  While the music is going, everyone thinks this will be a good change for them since they'll get a fancy chair instead of...
supercat
CC BY-SA 3.0
2017-03-24T17:05:41.870Z
...an ordinary one.  But if there were 100 players, and 100 ordinary chairs to start with, each such replacement would be guaranteed to leave *someone* without a chair.
supercat
CC BY-SA 3.0
2017-03-24T23:11:41.133Z
@nocomprende: Speculators who gamble *with their own money* will either make markets function more efficiently, or will lose an amount of money that exceeds the harm they cause to the market.  People who speculate recklessly with their own money may damage the market a little bit, but they'll run out of money before they damage it very much.  The real problems arise when people are allowed to place bets that they can't cover, which effectively means they're playing with other peoples' money.  There's no limit to the mischief that can cause if it's not punished severely.
supercat
CC BY-SA 3.0
2017-03-22T21:02:38.993Z
2017-03-22T21:02:38.993Z
supercat
<p>There will be a rapid rise in artificial schemes to get round the letter of the law. For example, an agent may charge you 90% of the minimum legal sale price to officially register your house as uninhabitable and obtain a compulsory demolition order for it. A new house built on the same site would not have any previous price history, so it could be sold for say 10% of its true market value, plus a large one-time charge (non-negotiable, of course!) for a "new-building insurance policy" or some such terminology.</p>

<p>Exploiting such loopholes in the law won't necessarily benefit the bulk of the population, but they would benefit the minority with the expertise to create the work-rounds - there will always be <em>some</em> property owners for whom taking a financial loss is a better option than not being able to sell at all, who can be exploited.</p>

CC BY-SA 3.0
2017-03-21T22:07:01.543Z
In Sweden the government since years is already desperately trying to get some temporary container houses built and to force small garden house owners to rent them out. But nothing of that has worked, because 50 year old "ABBA"-regulations require top quality only of all housing everywhere at any cost always everywhere with no regard to anything else. The only thing being built are a few luxury houses and a concert hall (and thousands of gypsy tents). You can safely ignore the possibility of an increased housing supply! The laws truly have enormous effect, they cannot be ignored by anyone.
LocalFluff
CC BY-SA 3.0
2017-03-21T17:57:22.043Z
2017-03-21T17:57:22.043Z
alephzero
<p>Mandating a house be sold at last price sold does not mean that people value it at that sticker price. I could mandate that water bottles only be bought for $1,000,000. This does not mean anyone would buy. I'd just be stuck with a bottle that I don't value.</p>

<p>Similarly, setting price floors on the housing market would mean many owners will be stuck with homes.</p>

<p>It's also important to note that the market devaluation of a home only matters to owners that are planning on selling. If I bought a house for \$200k and the market crashes the day after, I still VALUE the house at some amount > \$200k. It does not matter to me that the market price is lower because I still have the exact same home. If anything, permanent home owners should really like the idea of homes being devalued because it means lower property tax liability. </p>

<p>Sure, bubble bursts tend to have adverse effects on many other markets. But these are separate issues altogether.</p>

<p>A previous answer has already covered the emerging black market. This also happens in NYC with low-income housing regulations.</p>

CC BY-SA 3.0
2017-03-21T21:27:40.517Z
Whenever did you hear a macro economist use the word "value"??? No, they are cash counters. Bookkeepers of "economic activity". But what I try to ask here is if  a housing debt bubble crash wouldn't be made impossible if no one could sell his house to a lower PRICE than it was bought for? Regardless of values. And if it is bad, what bad things would happen?
LocalFluff
CC BY-SA 3.0
2017-03-23T00:01:54.857Z
I work in macroeconomics and we talk about "value" a lot. On a quick count, the word "value" appears 1659 times in the Australian System of National Accounts manual, i.e. about 3x/page. Importantly, such "values" are based on consensual transactions - i.e. what people are actually selling for. If nobody wants to buy your house for a million dollars, then its value isn't 1m no matter what the law says.
G_B
CC BY-SA 3.0
2017-03-23T15:00:15.087Z
If the law passes, you can be sure that mortgage lenders would institute a kind of margin call for the loans.
Mindwin Remember Monica
CC BY-SA 3.0
2017-03-21T16:09:13.163Z
2017-03-21T16:09:13.163Z
rrod18
<blockquote>
  <p>If the housing bubble would burst in Scandinavia as it has done in many other places the recent decade, certainly all banks will immediately be wiped out and millions of Scandinavians will become completely destitute for the rest of their lives with unpayable debts and no property to match it as a deep depression sets in.</p>
</blockquote>

<p>Firstly, it's not <em>that</em> bad, provided you have functioning central banks to bridge the banks' credit position.</p>

<p>But consider what normally happens when people are unable to make loan payments: the bank eventually repossesses the house and sells it on. Often for a discount because they're in a hurry to convert it back into capital. Now suppose they're unable to sell it due to price regulation laws, but the market has collapsed. What happens? The bank is stuck. They need capital to make loans, but they have houses instead. They still need bailing out.</p>

<p>(Note: if you jack up inflation to double-digit percentage, suddenly the house resale price law becomes less of a problem.)</p>

<p>In the end, you may end up having to <a href="http://www.dailymail.co.uk/news/article-2531852/Exorcising-Irelands-ghost-estates-Demolition-begins-housing-projects-built-economic-boom-left-country-300-000-homes.html" rel="noreferrer">demolish the houses</a>. Don't forget that houses, unoccupied, are a wasting asset: they require maintenance. The extreme case of this is probably Detroit.</p>

<p>So one extremely likely outcome of your minimum resale price law is that habitable houses get demolished because they cannot be sold at their minimum price.</p>

CC BY-SA 3.0
2017-03-21T21:49:44.850Z
Instead of demolishing the houses, the banks would simply hold them empty since they cannot legally sell them. It doesn't hurt their balance sheets at all since the government, with the force of law, guarantees that they never can be sold at a loss. Best bad loan ever! Just let it sit there on the balance sheet. Houses empty or not, who cares? The crash was avoided, my law succeeded. Maybe the bank could rent them out at corresponding 0.8% mortgage rate. Where else would people try to live? Sweden is a cold rainy place.
LocalFluff
CC BY-SA 3.0
2017-03-21T23:17:38.727Z
@LocalFluff So you're a bank with \$10M of houses that you can't sell, and \$10M of debts you need to pay to not go bankrupt. And you can't sell the houses to pay the debts so you go bankrupt. And then you give the houses to your creditors who are like "wtf am I supposed to do with these houses?" because they're now in the same position you just were (before you went bankrupt).
Criticize SE actions means ban
CC BY-SA 3.0
2017-03-22T00:50:01.453Z
@LocalFluff ^^^ what immibis is describing is called a 'toxic asset' Toxic assets are very, very bad
Jeutnarg
CC BY-SA 3.0
2017-03-22T09:37:56.833Z
@LocalFluff "crash was avoided" not necessarily - as Venezuala are discovering, if you impose price controls then suddenly the market stops functioning instead. You'd probably end up with an explosion in the 99-year-lease market to hack around it.
pjc50
CC BY-SA 3.0
2017-03-22T09:56:13.743Z
@pjc50 Isn't there an important difference between price controls on consumer goods, and price control on durable assets and paper assets, such as houses and stocks? Government price controls of the latter, by imposing negative interest rates, is what totally dominates the price level and price trend in modern times, obviously. What if people lease or rent? That still won't make the housing bubble collapse under this law, would it?
LocalFluff
CC BY-SA 3.0
2017-03-22T10:01:24.547Z
Interest rates are not price controls, and I think the only Western country to actually have negative central bank rates was Switzerland?
pjc50
CC BY-SA 3.0
2017-03-22T10:02:02.247Z
Anyway, the key concept is *market clearing*: it doesn't matter what you set the price to if people aren't willing and able to buy at that price.
pjc50
CC BY-SA 3.0
2017-03-24T11:31:14.173Z
@LocalFluff: you'd end up with something similar to this: https://en.wikipedia.org/wiki/SAREB , which is a form of transferring bank's real debt to state debt.
ninjalj
CC BY-SA 3.0
2017-03-21T16:58:21.527Z
2017-03-21T16:58:21.527Z
pjc50
<p>This would be a catastrophically bad idea. The next time the economy turns down, what happens?</p>

<p>Workers who own houses for which they cannot find a buyer at the same price they paid for the house, will be unable to move house. They will therefore be unable to take up employment elsewhere. So you have compounded an economic downturn with an artificial restriction on the local availability of the staff that a company might wish to hire! I can't imagine any other move that might make it <em>harder</em> to recruit staff as a recession bites and unemployment rises.</p>

<p>Surely, <em>anything</em> which restricts labour mobility within a nation's borders can only be a bad thing. It should therefore be as easy as possible for someone to sell a house in one location and buy a house in another, as the government can make it. Here in the UK, we have a silly tax on house purchases called stamp duty. One consequence is that it typically costs one 3% of the purchase cost of one's house, to re-locate. Therefore, it is an incentive to stay put, rather than respond to an offer of a better-paid or more desirable job elsewhere. Or, if an employer is desperate to recruit, it will have to somehow compensate its new recruit for that person's tax burden when he moves.</p>

<p>Back to this crazy idea: if one cannot sell one's house because nobody will pay the previous price, and it's illegal to cut the asking price, then the only legal option will be to rent it out instead. So you will create a nation of amateur landlords, mostly handling matters badly because they don't want to be landlords at all. I also imagine that insurance on houses will become several times more expensive, if not completely unobtainable, because there's one obvious way to get one's money out as cash. Insure the house for its previous purchase price / legally mandated minimum "worth", and then arrange for it to burn down.</p>

CC BY-SA 3.0
2017-03-22T12:00:34.837Z
2017-03-22T12:00:34.837Z
nigel222
<p>Price is the thing that balances supply and demand, if you fix prices artificially low then you create supply shortages. If you fix them artificially high you create demand shortages.</p>

<p>So people who want/need to sell their houses in an area where demand has dipped would be unable to do so. Even in areas where natural demand had not dipped buying a house would become a much ricker proposition further depressing demand.</p>

<p>I suspect that the net result of all of this is that houses throughout the country would quickly become unsellable. </p>

<p>There would likely be an explosion in the rental market as unsellable houses get rented out instead.</p>

<p>Banks would have to develop new departments to handle renting out the unsellable properties they reposessed </p>

<p>The government would have to figure out what the heck to do about valuing unsellable houses for inheritance tax purposes and what to do when the remaining assets of the owner were not enough to cover the inheritance tax. </p>

CC BY-SA 3.0
2017-03-21T22:16:40.923Z
But each and every house in Sweden is very much more expensive now than it was 20 (or 2) years ago. It's more here and less there, but there exists no area that's in less demand than before. Automatic profit from maximizing ones own debt at ever diminishing interest rate, and the guarantee that every house bought never could result in a loss. Banks don't need to sell or rent our empty houses, their legal minimal valuation remains intact on the balance sheet. And in no case did that legally minimal valuation decrease, since it never was sold for a price lower than the debt it was mortgaged for.
LocalFluff
CC BY-SA 3.0
2017-03-21T23:19:45.700Z
@LocalFluff That's not what the question is asking though. The question is asking what will happen if you *force* prices to be high when they would otherwise be dropping.
Criticize SE actions means ban
CC BY-SA 3.0
2017-03-21T18:52:01.957Z
2017-03-21T18:52:01.957Z
Peter Green
<p>A point that doesn't yet seem to have been made is that banks and other mortgage lenders would have to stop lending as soon as such a law was proposed, never mind enacted, and that would in itself cause the housing market to collapse. A bank will lend you €320,000 to buy a €400,000 house because they know that if you default on your payments and they have to repossess the house, they can recover the loan value by selling the house, even if they can't get as much as you paid for it. That's why you (usually) have to put down a deposit for a certain percentage of the purchase price, and the bank won't lend you the full amount. If they're not allowed to sell it for less than €400,000, even though they only need to recover €320,000, then they may well be unable to sell it at all and be stuck with both an unpaid loan and an unsellable house. (Yes, I know that Sweden doesn't use the euro, but it's more concise and more widely applicable to use euro as the currency in my example.)</p>

CC BY-SA 3.0
2017-03-25T17:12:09.223Z
2017-03-25T17:12:09.223Z
Mike Scott
<p>One of the worst ideas I have ever heard. All negative consequences, almost no positive ones. ANY attempt by government to restrict prices (whether by floor or ceiling or anything else) ALWAYS has perverse bad effects; it always causes worse problems than the problem it is trying to solve. A free market works best when all members of the market are FREE to decide what price they are willing to pay, or receive, for a particular good. Government sticking its nose into that transaction always makes at least one participant in the transaction worse off, usually both, and the economy as a whole always suffers.</p>

<p>It's like a politician on campaign promising "I will reduce taxes, increase government spending, and reduce government debt!" That never works, EVER.</p>

CC BY-SA 3.0
2017-03-25T14:45:22.143Z
Bad answer, but I can't downvote. Price controls are sometimes necessary, but they still don't work in this case.
Joshua
CC BY-SA 3.0
2017-03-25T17:31:08.643Z
I do not think the statements "NY attempt by government to restrict prices (whether by floor or ceiling or anything else) ALWAYS has perverse bad effects" [acording to which welfare criterion?], or " the economy as a whole always suffers" can be rigorously defended.
Ubiquitous
CC BY-SA 3.0
2017-03-26T00:50:57.280Z
Any action has perverse bad effects. While this idea is not good,
prosfilaes
CC BY-SA 3.0
2017-03-26T02:01:57.357Z
You haven't backed up any of your statements with any sort of logical analysis, documentation, or authoritative reference.  What you've written just a rant.
Hot Licks
CC BY-SA 4.0
2020-03-02T12:58:29.730Z
Agree with other commenters: Price restrictions can have bad effects. This particular price restriction will certainly have bad effects. Some other price restrictions don't, especially if the price was not based on any real cost to begin with (*cough* often rent *cough*)
Criticize SE actions means ban
CC BY-SA 3.0
2017-03-22T00:13:55.420Z
2017-03-25T17:29:56.177Z
2017-03-25T17:29:56.177Z
Frank Klotz
<p>I'm looking for a more general and principled answer and use Scandinavia today only as a sketchy example of the kind of scenario I'm asking about.</p>

<p>I live in Scandinavia where house prices has had an uninterrupted bubble boom during a quarter of a century now. Households are the most indebted in the world. Mostly of course in the form of housing loans. If the housing bubble would burst in Scandinavia as it has done in many other places the recent decade, certainly all banks will immediately be wiped out and millions of Scandinavians will become completely destitute for the rest of their lives with unpayable debts and no property to match it as a deep depression sets in.</p>

<p>Some key figures (for Sweden, not the oil country):</p>

<ul>
<li>+7% housing prices on average per year since 23 years, with record increases the last couple of years.</li>
<li>0% growth in GDP per capita last 10 years (housing prices doubled anyway).</li>
<li>1.2% (positive) CPI-inflation since 10 years.</li>
<li>0.8% (positive) consumer housing loan now offered in ads without negotiation (after tax deduction) while central bank interest rates are stuck deep into
the negative.</li>
</ul>

<p>Imagine that the government makes a law that forbids anyone to sell any housing at a lower price than what it was last bought for. Thus per definition the house bubble cannot burst, not legally anyway. And everyone is safe, the crash prevented and everyone will keep making millions simply by borrowing more for risk free "investing" in simply owning ones own house, right?</p>

<p>What would the negative consequences be and how would it play out?</p>

CC BY-SA 3.0
2017-03-21T18:06:20.297Z
I am not sure how this would work with receivership.  If you can't sell it, you can't liquidate it-- so what happens when you go bankrupt?  You can't force someone to buy it for more than they want to pay, and you can't force someone to hang on to a property (and continue to pay property tax on it) if they're broke.
John Wu
CC BY-SA 3.0
2017-03-21T18:36:05.377Z
Lots of people would rent.
mkingsbu
CC BY-SA 3.0
2017-03-21T21:15:08.013Z
@mkingsbu They could try! Extremely few rental appartments to be found in Sweden, and heavy tax penalties on anyone who rents out his own home to anyone. Still, renting wouldn't bust the bubble. Housing prices could only continue upwards, saving the banks.
LocalFluff
CC BY-SA 3.0
2017-03-21T21:25:46.367Z
You are a bit pessimistic about what would happen in the bubble burst. For once, it is not clear that all the banks would collapse. From 87 to 93 the housingprices in Norway dropped 30%, and several banks got into problems. The state took over control, guaranteed for deposits, and steared them through it(the bankowners lost though). Especially with your own currency, as the Scandinavian countries (sans Finland) have, the state has some tools available. They can for example press money, drive up inflation and give taxbreaks for interest-cost. Suddenly those big loans ain't that big no more;-)
epa095
CC BY-SA 3.0
2017-03-21T22:17:57.753Z
A lot less houses will be sold. The alternative to selling at a low price isn't selling at a high price, it's not selling.
Criticize SE actions means ban
CC BY-SA 3.0
2017-03-21T22:24:27.583Z
@immibis, yes—it's only a slight variation on the maxim that regardless of minimum wage laws, the true minimum wage is always $0.
Wildcard
CC BY-SA 3.0
2017-03-21T22:41:28.327Z
I do not understand why do you think that if someone can't sell something at X, it should cost more than X. Imagine that you bought a vase for 10k but can't sell it below 1M. This does not mean that you suddenly became 100 times more rich. On the contrary, if you really need to sell it, it means that you are screwed and lost 10k.
Salvador Dali
CC BY-SA 3.0
2017-03-21T22:47:35.533Z
@SalvadorDali Basically, it is a perfect asset on the balance sheet, since it cannot legally lose value. Those who want to move to another house simply have to barter with a chain of people than can rotate their houses with each other. And each of them will profit from it because they all will sell what they had more expensively, and can thus increase their bank loans, which in itself is profitable since the interest is lower than the cost of living and the house investment impossibly can become a loss. Some "cannot", that's how it is already today. Next is: Status quo or crash?
LocalFluff
CC BY-SA 3.0
2017-03-21T23:10:38.310Z
I can envision a situation where the price rise slows and recent home buyers rush to "unload" their homes while they can, leading to a crash.  And, of course, a lot of people will fear this scenario and not buy a house.  The new house market will collapse, even before the existing home crash.
Hot Licks
CC BY-SA 3.0
2017-03-22T01:43:43.737Z
How would physical/actual depreciation fit in your scenario?
user2338816
CC BY-SA 3.0
2017-03-22T02:40:10.463Z
Just look at Detroit. That's what will happen.
Michael Hampton
CC BY-SA 3.0
2017-03-22T03:50:04.787Z
Will it also disallow giving house for free? Otherwise people will just pay a sum to be given the house for free, with a clearinghouse (a notary public for example) making sure that the transaction is credit-risk-free. It really depends on how the law is formulated - if waterproof, liquidity drops to zero and no more houses change hands. Otherwise, there are so many ways to design the transaction that the effective price will just drop, even if the official price doesn't.
Erwin Bolwidt
CC BY-SA 3.0
2017-03-22T08:34:01.257Z
@ErwinBolwidt Then why have any economic regulations of anything at all? For example, if paper moneies are cheaper to produce than digging up gold, then everyone will print their own monies. Is that how it works, that government IS irrelevant, and not only SHOULD be?
LocalFluff
CC BY-SA 3.0
2017-03-22T08:50:30.693Z
@LocalFluff I don't see the link between your and my comment
Erwin Bolwidt
CC BY-SA 3.0
2017-03-22T09:52:06.263Z
@ErwinBolwidt _"It really depends on how the law is formulated"_ So economic theory hasn't much to say about the consequences? That theory assumes that people commit crimes to cheat any law, so regulations are just random irrelevant noise with some avoidance costs depending on how many police the government employs?
LocalFluff
CC BY-SA 3.0
2017-03-22T11:03:59.007Z
It would be simpler and more direct to pass a law against being destitute. While you're at it, raise the minimum wage to $10,000 an hour and make everyone insanely rich.
Greg Taylor
CC BY-SA 3.0
2017-03-22T14:20:26.883Z
@LocalFluff people structuring transactions (legally) to avoid regulations all the time, it's a major issue. And it's possible for the cost of enforcing compliance against evasion to become ruinous; this is a major argument point in the War on Drugs.
pjc50
CC BY-SA 3.0
2017-03-22T16:40:07.213Z
What happens with accidental loss? E.g. if there's a massive house fire and the building is destroyed. Are you prevented from selling the vacant lot for less than you purchased the lot & mansion for? If not, then expect an increase in house fires that coincidentally only just cross the damage threshold that triggers reappraisal. If you are, expect an increase in insurance fraud, as people attempt to get enough money to rebuild such that honest appraisal value matches the legal threshold value.
R.M.
CC BY-SA 3.0
2017-03-22T16:49:12.017Z
@R.M. The fire insurance company takes over the house and makes a guaranteed profit on its balance sheet because it can never be lawfully sold at a loss. The balance sheet of the insurance company will continuously improves as the mark-to-market "value" of that house keeps on increasing. The condition of the house doesn't matter, it must never sell at a lower price than it was bought for. It is that simple!
LocalFluff
CC BY-SA 3.0
2017-03-22T16:52:55.183Z
@LocalFluff You seem to be consistently confusing a law that says "you cannot sell this house for less than X" with a law that says "you are **guaranteed to be able to sell** this house for X whenever you choose".  The former is definitely not the latter, and means that any drop in price/value means the house is worth **zero** in the short term.  That is definitely worse than now.
Andrzej Doyle
CC BY-SA 3.0
2017-03-22T17:46:45.217Z
@LocalFluff Okay, the insurance company takes the property and pays the previous owners the legal minimum. Then what? They have a burned out shell they don't want and can't use, so they need to sell. Who do they sell it to? Who is going to buy a smoking pile of ruins at the same price that a fully functioning house down the street sells for? Sure, until they find a fool to buy, they keep it as an "asset" - but to get it they paid out cash. Do this for enough houses and all the usable cash is converted to un-usable houses. No cash means they can't operate, despite having a full balance sheet.
R.M.
CC BY-SA 3.0
2017-03-22T20:12:02.493Z
The expression "moral hazard" comes to mind. This scheme sounds like it incentivizes arson.
Eric Lippert
CC BY-SA 3.0
2017-03-22T22:05:19.817Z
Comments are not for extended discussion; this conversation has been [moved to chat](http://chat.stackexchange.com/rooms/55861/discussion-on-question-by-localfluff-a-law-against-selling-any-house-cheaper-tha).
Ubiquitous
CC BY-SA 3.0
2017-03-22T22:06:43.917Z
Interestingly, this is *already* how housing bubbles burst (at least to an extent). The number of transaction drops and it takes years to come back to its previous level. People are stuck in their houses, because their mortgage is underwater or they are not prepared to take such a large loss. Eventually, inflation will ensure that the current locked-in price will match a price the market is able to sustain. Of course, without a law, some transactions do take place, some people really have to sell quickly, etc. but the general logic is still strikingly similar.
Relaxed
CC BY-SA 3.0
2017-03-23T00:17:44.923Z
@R.M. - Yeah, I would expect to see a mysterious rise in the frequency of house fires.
Hot Licks
CC BY-SA 3.0
2017-03-24T02:06:10.727Z
The system won't let me answer, so I will post my answer here:
goblin GONE
CC BY-SA 3.0
2017-03-24T02:09:11.707Z
You're thinking about it wrong. The reason people are indebted is because house prices are high, and house prices are high because good houses are scarce. If you want to solve the problem, you have implement policies that make good houses less scarce. The first thing to do is remove most laws that prevent people building high. If someone wants to build a 5-story apartment complex in an area full of 1 and 2 story houses, let them. Change the laws so it's harder to use the legal system to prevent the development of tall buildings....
goblin GONE
CC BY-SA 3.0
2017-03-24T02:13:25.377Z
This will reduce prices, and make the problem less. The second thing to do is to reduce barriers to entry in the construction industry, so there can be more competition between construction firms, thereby lowering the cost of creating new buildings. More generally, anything that makes construction cheaper and easier is a good idea. Establish "construction science" divisions in your universities that can innovate new ways of building things that are more efficient than what's available. And create a website where the performance of difference construction firms can be compared...
goblin GONE
CC BY-SA 3.0
2017-03-24T02:16:25.343Z
... and their past ability to meet their promises, deadlines and obligations can be contrasted. Call it "rate my construction firm.com" or something. Thirdly, another idea to reduce housing scarcity is to penalize people for owning more than one residential property at any given time. This will encourage investors to invest in non-residential property, making it cheaper for families to invest in their family home.
goblin GONE
CC BY-SA 3.0
2017-03-24T02:18:47.900Z
Finally, you can try to compensate people for these changes. House prices are going to crash under the policies I outline above, at least in the short term. That's a **good thing**, because it means that suddenly families can afford houses again, it's going to be less of a burden on them. However, like you said, if you take out a big loan on a house and suddenly it's value crashes - that's not very nice. It's not very fair, either. So, you want to bring in laws that compensate people for their loss of house value, especially if it's their family home and they're in debt.
goblin GONE
CC BY-SA 3.0
2017-03-24T02:39:11.360Z
@goblin - I don't think that the scarcity of housing is that big of a factor.  Even in parts of the US where the cost of the land is less than half the cost of a finished house, you would still see most of the problems outlined above.  The only difference would be that prices couldn't crash as severely.  But more people of lesser means can afford houses in such areas, so you would "burn" more people, and they would tend to be people with fewer resources to fall back on.
Hot Licks
CC BY-SA 3.0
2017-03-24T13:48:26.680Z
I don't have much confidence in the so-called free market as some do, but this type of regulation would probably be disastrous because everyone would be stuck in their homes.   Home prices would probably rise much slower because there wouldn't be as many available homes on the market.
Mark Rogers
CC BY-SA 3.0
2017-03-24T16:05:49.140Z
Also I don't know if I would call it a bubble if its 'quarter of a century'.  Bubbles tend to resolve themselves in under a decade, which is probably part of the 'bubble' idea.
Mark Rogers
CC BY-SA 3.0
2017-03-24T16:06:54.937Z
Cheaper homes help lower income people find homes.  So its not necessarily good for some if the home prices always rise.
Mark Rogers
CC BY-SA 3.0
2017-03-24T21:32:11.213Z
This is basically the standard textbook question of the price floor recast in  a growth context. I'd recommend textbooks by Paul Krugman or Greg Mankiw, depending on your politics (the books are identical though). While laws can regulate house prices, they cannot regulate house quality, so a rational home-owner will upgrade the house to ensure that, eventually, the regulated price is fair given the quality of the house. It's the opposite of the common price ceiling. Price controls are never a great idea, but a sign of desperation and often of incompetence.
PatrickT
CC BY-SA 3.0
2017-03-25T11:08:00.337Z
@nocomprende, I didn't read that bit and going over the question again I don't see it, perhaps it is stated in a comment? In my comment, I say that home-owners would UPgrade the house - is that forbidden too? The general principle is that when governments regulate prices, the adjustment will occur elsewhere, along the quantity or quality dimension or, if Scandinavia go the whole hog, then people will vote with their feet and leave! A company will be set up, uber style, to match people for house swaps, where money will change hands in a roundabout way...  there's always a way. comprendes? ;-)
PatrickT
CC BY-SA 3.0
2017-03-26T00:02:16.253Z
Blaming the market for lowering prices is like shooting the messenger.  Sure, if you really hate the message it might spare you from a little bit of pain in the short term, but this sorta thing never works out in the end.  The market needs to be able to correct itself, or the entire system will eventually break down.
Nat
CC BY-SA 3.0
2017-03-26T07:13:44.750Z
You wrote, "it is a perfect asset on the balance sheet, since it cannot legally lose value". You are confusing accounting gimmicks and value of a marketable asset. (I'm disregarding  any sentimental value of the asset since it's irrelevant to the present discussion.) The value of a marketable asset is what it can be sold for, either gross or net of transaction costs. Entering a different number in the balance sheet for this asset doesn't make the asset either more or less valuable.
Mico
<nonexpert><housing><law><economic-bubble>
A law against selling any house cheaper than it was bought for, what consequences would that have?
LocalFluff
# A law against selling any house cheaper than it was bought for, what consequences would that have?

(Asked by: username_0 on 2017-03-21)

I'm looking for a more general and principled answer and use Scandinavia today only as a sketchy example of the kind of scenario I'm asking about.

I live in Scandinavia where house prices has had an uninterrupted bubble boom during a quarter of a century now. Households are the most indebted in the world. Mostly of course in the form of housing loans. If the housing bubble would burst in Scandinavia as it has done in many other places the recent decade, certainly all banks will immediately be wiped out and millions of Scandinavians will become completely destitute for the rest of their lives with unpayable debts and no property to match it as a deep depression sets in.

Some key figures (for Sweden, not the oil country):

* +7% housing prices on average per year since 23 years, with record increases the last couple of years.
* 0% growth in GDP per capita last 10 years (housing prices doubled anyway).
* 1.2% (positive) CPI-inflation since 10 years.
* 0.8% (positive) consumer housing loan now offered in ads without negotiation (after tax deduction) while central bank interest rates are stuck deep into
  the negative.

Imagine that the government makes a law that forbids anyone to sell any housing at a lower price than what it was last bought for. Thus per definition the house bubble cannot burst, not legally anyway. And everyone is safe, the crash prevented and everyone will keep making millions simply by borrowing more for risk free "investing" in simply owning ones own house, right?

What would the negative consequences be and how would it play out?

**Tags:** nonexpert, housing, law, economic-bubble
> **Comments:**
> **username_1**: I am not sure how this would work with receivership.  If you can't sell it, you can't liquidate it-- so what happens when you go bankrupt?  You can't force someone to buy it for more than they want to pay, and you can't force someone to hang on to a property (and continue to pay property tax on it) if they're broke.  
> **username_2**: Lots of people would rent.  
> **username_0**: @mkingsbu They could try! Extremely few rental appartments to be found in Sweden, and heavy tax penalties on anyone who rents out his own home to anyone. Still, renting wouldn't bust the bubble. Housing prices could only continue upwards, saving the banks.  
> **username_3**: You are a bit pessimistic about what would happen in the bubble burst. For once, it is not clear that all the banks would collapse. From 87 to 93 the housingprices in Norway dropped 30%, and several banks got into problems. The state took over control, guaranteed for deposits, and steared them through it(the bankowners lost though). Especially with your own currency, as the Scandinavian countries (sans Finland) have, the state has some tools available. They can for example press money, drive up inflation and give taxbreaks for interest-cost. Suddenly those big loans ain't that big no more;-)  
> **username_4**: A lot less houses will be sold. The alternative to selling at a low price isn't selling at a high price, it's not selling.  
> **username_5**: @immibis, yes—it's only a slight variation on the maxim that regardless of minimum wage laws, the true minimum wage is always $0.  
> **username_6**: I do not understand why do you think that if someone can't sell something at X, it should cost more than X. Imagine that you bought a vase for 10k but can't sell it below 1M. This does not mean that you suddenly became 100 times more rich. On the contrary, if you really need to sell it, it means that you are screwed and lost 10k.  
> **username_0**: @SalvadorDali Basically, it is a perfect asset on the balance sheet, since it cannot legally lose value. Those who want to move to another house simply have to barter with a chain of people than can rotate their houses with each other. And each of them will profit from it because they all will sell what they had more expensively, and can thus increase their bank loans, which in itself is profitable since the interest is lower than the cost of living and the house investment impossibly can become a loss. Some "cannot", that's how it is already today. Next is: Status quo or crash?  
> **username_7**: I can envision a situation where the price rise slows and recent home buyers rush to "unload" their homes while they can, leading to a crash.  And, of course, a lot of people will fear this scenario and not buy a house.  The new house market will collapse, even before the existing home crash.  
> **username_8**: How would physical/actual depreciation fit in your scenario?  
> **username_9**: Just look at Detroit. That's what will happen.  
> **username_10**: Will it also disallow giving house for free? Otherwise people will just pay a sum to be given the house for free, with a clearinghouse (a notary public for example) making sure that the transaction is credit-risk-free. It really depends on how the law is formulated - if waterproof, liquidity drops to zero and no more houses change hands. Otherwise, there are so many ways to design the transaction that the effective price will just drop, even if the official price doesn't.  
> **username_0**: @ErwinBolwidt Then why have any economic regulations of anything at all? For example, if paper moneies are cheaper to produce than digging up gold, then everyone will print their own monies. Is that how it works, that government IS irrelevant, and not only SHOULD be?  
> **username_10**: @LocalFluff I don't see the link between your and my comment  
> **username_0**: @ErwinBolwidt _"It really depends on how the law is formulated"_ So economic theory hasn't much to say about the consequences? That theory assumes that people commit crimes to cheat any law, so regulations are just random irrelevant noise with some avoidance costs depending on how many police the government employs?  
> **username_11**: It would be simpler and more direct to pass a law against being destitute. While you're at it, raise the minimum wage to $10,000 an hour and make everyone insanely rich.  
> **username_12**: @LocalFluff people structuring transactions (legally) to avoid regulations all the time, it's a major issue. And it's possible for the cost of enforcing compliance against evasion to become ruinous; this is a major argument point in the War on Drugs.  
> **username_13**: What happens with accidental loss? E.g. if there's a massive house fire and the building is destroyed. Are you prevented from selling the vacant lot for less than you purchased the lot & mansion for? If not, then expect an increase in house fires that coincidentally only just cross the damage threshold that triggers reappraisal. If you are, expect an increase in insurance fraud, as people attempt to get enough money to rebuild such that honest appraisal value matches the legal threshold value.  
> **username_0**: @R.M. The fire insurance company takes over the house and makes a guaranteed profit on its balance sheet because it can never be lawfully sold at a loss. The balance sheet of the insurance company will continuously improves as the mark-to-market "value" of that house keeps on increasing. The condition of the house doesn't matter, it must never sell at a lower price than it was bought for. It is that simple!  
> **username_14**: @LocalFluff You seem to be consistently confusing a law that says "you cannot sell this house for less than X" with a law that says "you are **guaranteed to be able to sell** this house for X whenever you choose".  The former is definitely not the latter, and means that any drop in price/value means the house is worth **zero** in the short term.  That is definitely worse than now.  
> **username_13**: @LocalFluff Okay, the insurance company takes the property and pays the previous owners the legal minimum. Then what? They have a burned out shell they don't want and can't use, so they need to sell. Who do they sell it to? Who is going to buy a smoking pile of ruins at the same price that a fully functioning house down the street sells for? Sure, until they find a fool to buy, they keep it as an "asset" - but to get it they paid out cash. Do this for enough houses and all the usable cash is converted to un-usable houses. No cash means they can't operate, despite having a full balance sheet.  
> **username_15**: The expression "moral hazard" comes to mind. This scheme sounds like it incentivizes arson.  
> **username_16**: Comments are not for extended discussion; this conversation has been [moved to chat](http://chat.stackexchange.com/rooms/55861/discussion-on-question-by-localfluff-a-law-against-selling-any-house-cheaper-tha).  
> **username_17**: Interestingly, this is *already* how housing bubbles burst (at least to an extent). The number of transaction drops and it takes years to come back to its previous level. People are stuck in their houses, because their mortgage is underwater or they are not prepared to take such a large loss. Eventually, inflation will ensure that the current locked-in price will match a price the market is able to sustain. Of course, without a law, some transactions do take place, some people really have to sell quickly, etc. but the general logic is still strikingly similar.  
> **username_7**: @R.M. - Yeah, I would expect to see a mysterious rise in the frequency of house fires.  
> **username_18**: The system won't let me answer, so I will post my answer here:  
> **username_18**: You're thinking about it wrong. The reason people are indebted is because house prices are high, and house prices are high because good houses are scarce. If you want to solve the problem, you have implement policies that make good houses less scarce. The first thing to do is remove most laws that prevent people building high. If someone wants to build a 5-story apartment complex in an area full of 1 and 2 story houses, let them. Change the laws so it's harder to use the legal system to prevent the development of tall buildings....  
> **username_18**: This will reduce prices, and make the problem less. The second thing to do is to reduce barriers to entry in the construction industry, so there can be more competition between construction firms, thereby lowering the cost of creating new buildings. More generally, anything that makes construction cheaper and easier is a good idea. Establish "construction science" divisions in your universities that can innovate new ways of building things that are more efficient than what's available. And create a website where the performance of difference construction firms can be compared...  
> **username_18**: ... and their past ability to meet their promises, deadlines and obligations can be contrasted. Call it "rate my construction firm.com" or something. Thirdly, another idea to reduce housing scarcity is to penalize people for owning more than one residential property at any given time. This will encourage investors to invest in non-residential property, making it cheaper for families to invest in their family home.  
> **username_18**: Finally, you can try to compensate people for these changes. House prices are going to crash under the policies I outline above, at least in the short term. That's a **good thing**, because it means that suddenly families can afford houses again, it's going to be less of a burden on them. However, like you said, if you take out a big loan on a house and suddenly it's value crashes - that's not very nice. It's not very fair, either. So, you want to bring in laws that compensate people for their loss of house value, especially if it's their family home and they're in debt.  
> **username_7**: @goblin - I don't think that the scarcity of housing is that big of a factor.  Even in parts of the US where the cost of the land is less than half the cost of a finished house, you would still see most of the problems outlined above.  The only difference would be that prices couldn't crash as severely.  But more people of lesser means can afford houses in such areas, so you would "burn" more people, and they would tend to be people with fewer resources to fall back on.  
> **username_19**: I don't have much confidence in the so-called free market as some do, but this type of regulation would probably be disastrous because everyone would be stuck in their homes.   Home prices would probably rise much slower because there wouldn't be as many available homes on the market.  
> **username_19**: Also I don't know if I would call it a bubble if its 'quarter of a century'.  Bubbles tend to resolve themselves in under a decade, which is probably part of the 'bubble' idea.  
> **username_19**: Cheaper homes help lower income people find homes.  So its not necessarily good for some if the home prices always rise.  
> **username_20**: This is basically the standard textbook question of the price floor recast in  a growth context. I'd recommend textbooks by Paul Krugman or Greg Mankiw, depending on your politics (the books are identical though). While laws can regulate house prices, they cannot regulate house quality, so a rational home-owner will upgrade the house to ensure that, eventually, the regulated price is fair given the quality of the house. It's the opposite of the common price ceiling. Price controls are never a great idea, but a sign of desperation and often of incompetence.  
> **username_20**: @nocomprende, I didn't read that bit and going over the question again I don't see it, perhaps it is stated in a comment? In my comment, I say that home-owners would UPgrade the house - is that forbidden too? The general principle is that when governments regulate prices, the adjustment will occur elsewhere, along the quantity or quality dimension or, if Scandinavia go the whole hog, then people will vote with their feet and leave! A company will be set up, uber style, to match people for house swaps, where money will change hands in a roundabout way...  there's always a way. comprendes? ;-)  
> **username_21**: Blaming the market for lowering prices is like shooting the messenger.  Sure, if you really hate the message it might spare you from a little bit of pain in the short term, but this sorta thing never works out in the end.  The market needs to be able to correct itself, or the entire system will eventually break down.  
> **username_22**: You wrote, "it is a perfect asset on the balance sheet, since it cannot legally lose value". You are confusing accounting gimmicks and value of a marketable asset. (I'm disregarding  any sentimental value of the asset since it's irrelevant to the present discussion.) The value of a marketable asset is what it can be sold for, either gross or net of transaction costs. Entering a different number in the balance sheet for this asset doesn't make the asset either more or less valuable.  

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## 10 answers

### Answer by username_23 on 2017-03-21. Score: 79

That would be really, really bad.

Any house that loses value will be unsellable, and thus virtually worthless.

Most people living in such a house would be prevented from moving. They cannot sell it, since no one wants to buy an overpriced house, and they cannot afford buying another house with their capital already tied up in the current house.

A black market would appear, with people giving money back under the table. "Buy my house for 4M SEK and I'll refund 1M SEK under the table."

I can tell you one thing it won't do. It won't stop prices from ever falling.

> **Comments:**
> **username_24**: This is a good answer but I find that the last sentence greatly detracts from it. "It won't stop prices from ever falling." What prices? Official or black market, of a given house or of a general category of houses, etc? I think you need to be clear on this because the official price of a given house would obviously not fall.  
> **username_0**: Most who move, move to another house in the same jurisdiction. If some housing broker manages to puzzle together a number of clients so that A can move to B who can move to C who can move to A, then each can add X% to the last price and everyone involved makes big profits since the bank loans are guaranteed risk free and the rate is much lower (negative actually given CPI inflation) than the property enrichment they all enjoy. A majority don't own any house anyway, and many of those who do are retired and will never move again. Their children will enjoy a guaranteed increased inheritance.  
> **username_23**: @LocalFluff If people are prevented from moving to cheaper housing, then there will be personal bankrupcies and those houses will end up with the banks. So bank loans won't be risk free.  
> **username_0**: There will remain houses that are cheaper than other houses. What house in Sweden is cheaper today than it was 23 years ago? If no house is allowed to lose in price then housing loans have risk free security (which the bank after a forfeiture is guaranteed to be able to sell with a profit) and no one will lose money when selling her house. Banks will halve their interest rates each time the prices double. That is what has happened for 23 years now. The threat is that it ends, so why not perpetuate status quo with a simple law? Isn't that the safe and conservative way to go?  
> **username_25**: @LocalFluff "no one will lose money when selling her house" That also includes cases where they can't sell at all.  
> **username_12**: *(which the bank after a forfeiture is guaranteed to be able to sell with a profit)* - you've only guaranteed that they make their money back IF they sell it. You've not guaranteed that they'll find a buyer at that price. Which is quite likely. See my answer.  
> **username_26**: @LocalFluff A banker loans money because he believes he can get the bank's money back, plus interest. So he makes the borrower put up 20% of the price of the house as a down payment, knowing that in case of foreclosure in a down market, he can sell the house at 80% of appraised value and still get his money back.  By making that illegal to do, you just killed the home mortgage market.  And that means no home-improvement loans, which help to bolster home prices. Congratulations! Your economy is dead.  
> **username_0**: @MontyHarder No no no. The banker gives the borrower the loan for free for 10 years, with the house as security. And 20 years later the banker has a 4 times more valuable house as loan security. +300% profit in case of default, and +400% basis for his 0.8% loan renewal rent. At least that is what has happened. I'm asking about forbidding sales at lower prices, in order to guarantee an eternal continuation of this lifelong bubble. And I cannot prolong this comment-chat anymore, sorry!  
> **username_4**: @LocalFluff "which the bank after a forfeiture is guaranteed to be able to sell with a profit" - there's your problem, why do you think the bank is guaranteed to be able to sell it with a profit?  
> **username_27**: Surely instead of relying on the stranger being kind enough to give you the 1M SEK promised, just do some 'home improvements' to get the value to $1 more than you bought it for. Improvements such as a decorative statue in the house somewhere, that looks suspiciously like gold bullion.  
> **username_0**: @immibis Why would a bank ever want to sell any of the empty houses it owns after a customer defaulted on the interest payments? The empty house is a profit on the balance sheet. It's mark-to-market can only keep on increasing. A stronger banking balance sheet helps lowering the interest rates further and drives up housing prices, which just increases the balance sheet ever more.  
> **username_28**: @LocalFluff The value for the bank of a house is whatever it can be sold for.  If the house can not be sold the value is zero.  
> **username_29**: @KlasLindbäck "Any house that loses value will be unsellable". Why?  Many houses will have been bought many years ago, at prices much lower than their current values.  Even if they lose value, their value may still be much higher than the price at which they were bought.  
> **username_4**: @LocalFluff On the balance sheet is not in reality. If I'm the bank, WTF am I supposed to do with this house? I can't use it to pay interest or taxes or make loans. If the balance sheet says I have \$10M of houses but I don't have any cash, then I am going to go out of business. The map is not the territory. Businesses exist to make money, not to put big meaningless numbers on their balance sheets. If the houses cannot be converted into \$10M cash, then it's totally irrelevant whether the balance sheet says \$10 or \$10M or \$999999999999999999999999999999.  
> **username_4**: @LocalFluff also *you're* the one who said the house could be sold for a profit, not me.  
> **username_30**: @Taemyr re: `"If the house can not be sold the value is zero."` - actually, the value is worse than 0 (at least for any owner not living in or renting it). A house has to be maintained and have property taxes paid; for a bank the costs also include having someone manage these toxic assets (I have a friend with this job in the US).  
> **username_31**: @denesp The official price would fall. You cannot claim a value that you cannot actually sell something for. Otherwise, I could buy a vase and agree to a limitation that I cannot sell it for less than \$1 million and then claim the vase is worth \$1 million. That trick could be used by a company to claim it's not bankrupt. No accounting rules permit that! If you can't actually sell an asset for a price, there are heavy restrictions on your ability to value it for that price.  
> **username_24**: @DavidSchwartz I see your poinst, but I am assuming if they make a legal change it also applies to the accounting restrictions. Otherwise it is a very half-hearted law. But you are correct, this was not specified.  
> **username_31**: @denesp Accounting rules have very important purposes. A rule permitting companies to value things at amounts they could never get for them would cause huge problems. Say a person has a home the law allows him to value at a million dollars but that cannot be sold at all because of the law. Does he qualify for loans? If he owes \$150,000, is he insolvent? Can he use the home to secure a \$650,000 loan? Loopholes in accounting rules cause huge damage when abused.  
> **username_24**: @DavidSchwartz As do some laws that meddle with the market. I am not disputing your point, just pointing out that if a law says the price is $p$, then the price is $p$. The market may collapse, and there will probably be loopholes. Off: To make a dollar sign you need to type a backslash before the dollar sign, i.e. \\$.  
> **username_31**: @denesp My point is that you will never make it work. Everything you do to try to make it work will break something else. If a governmental decrees could easily create large amounts of real value, we'd live in a very different world than the one we live in. The value simply doesn't exist and it can't be made to exist by saying it exists.  
> **username_16**: Comments are not for extended discussion; this conversation has been [moved to chat](http://chat.stackexchange.com/rooms/55894/discussion-on-answer-by-klas-lindback-a-law-against-selling-any-house-cheaper-th).  

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### Answer by username_32 on 2017-03-21. Score: 29

> And everyone is safe, the crash prevented and everyone will keep making millions simply by borrowing more for risk free "investing" in simply owning ones own house, right?

It is true, your investment cannot drop in nominal value (not counting inflation,) but *it can become totally illiquid*, which is worse in many ways.
You see, if a stock drops in value by 5%, I can sell and take the 5% loss, freeing and preserving 95% of my capital.
If a house in your scenario drops in value by even .05%, then I cannot cut my losses.

From a short-term perspective, *any loss at all becomes a total loss.*
From a long-term perspective, *any loss is still magnified*, since you can't free your capital for better investments - the opportunity cost is high even if you manage to sell later.
Either way, the risk of real estate investing would rise dramatically.
This will increase the cost of home ownership.

Of course, that's speaking abstractly.
In reality, houses make up a huge portion of most people's net worth and that's the real danger of illiquidity in the housing market.
*Imagine not being able to move, not being able to refinance, only being able to free yourself of your investment by means of a total loss.*
That's not going to work for many people. These people will have to rent instead of owning, which will increase demand (and price) for renting.

Once this all settles out, people will no longer consider real estate to be a 'safe' investment,
although con artists and deceivers may succeed in swindling people for a while.

Tl;Dr

* The inability to sell a depreciated asset increases the risk of that asset. Increasing risk increases cost, so you'd see home ownership increase in cost as well. That's bad.
* Renting would become more attractive by comparison to home ownership, so you'd see demand (and price) rise for renting. That would be very bad for low income families.
* Ironically, this law and its fallout might disabuse people of the notion that real estate is a 'safe' or 'guaranteed' investment. That would be good.

Finally, the only people that I think will truly benefit are the large companies which would be able to handle the risk of home ownership in this scenario,
because they will have less competition.

> **Comments:**
> **username_29**: You rightly identify that there would be effects on the demand for rented homes.  What about effects on the supply of rented homes?  You need to consider both sides to justify the conclusion that rents would rise.  
> **username_0**: How does it really connect, or play out, that an asset could become depreciated if it is impossible to sell it at a depreciated price? If a broker finds (or if they find each other on social media) A, B and C such that A wants to move to B and B to C and C to A, and each of them adds $100,000 to their purchasing prices. It is just a roundabout and everyone involves and the bank all profit from it. No risk for any crash. Wouldn't my suggested law make safe that which is now a fear and a real threat?  
> **username_32**: @AdamBailey In the short-term, I think prices will rise because the housing market supply is fairly inelastic - you can't just build more houses in a week (even if you can find open plots), and you can't just get people who weren't planning on selling to sell. Perhaps I should have stated that assumption of inelasticity. In the long-term, I would expect rent to go down some. I would still expect to see an overall increase in rental price, because rental costs are related to home ownership costs, which have been driven up.  
> **username_32**: @LocalFluff Depreciation has little/nothing to do with the actual sale of an item. Depreciation means that the value of a tangible asset has decreased. The fact that you cannot legally sell at a depreciated price does not mean that depreciation can't occurr, it just means that **the results of depreciation have changed**. Previously, depreciation meant that, if you wanted to sell, you would get a lower price. Now, depreciation means that you cannot sell it at all. I hope you can see why the second option is worse.  
> **username_32**: @LocalFluff 1. ABC switcheroos like you just described are utterly unfeasible. If you cannot see why, then I can only assume that you have never tried to sell a house. If you have and still think that way, then I can only assume that you were unbelievably lucky with your sale. 2. If you raise your price 100K and also pay an additional 100K, then you have earned NOTHING. The bank alone profits, since their fees are now higher. 3. No, your law does not protect the market and makes any downturns far more catastrophic. See my answer or any of the other good answers as to why.  
> **username_0**: I'm talking about PRICES here, not VALUES. When did you last hear a macro economist use the word "value"? (At least in its actual meaning). Macro economics is the accounting of simply adding up all the price tags one can find. "Aggregation". The larger the sum of them all is, the better.  
> **username_29**: @Jeutnarg Total housing supply is fairly inelastic, as you say.  But housing that has been owner-occupied and has become unsellable could become available for rent if no longer required by its owner, eg due to moving, or following death.  So the supply or housing for rent would probably increase.  
> **username_31**: @LocalFluff You're correct that scams and tricks of the type you describe might mitigate some of the harm this rule would do. But the cost of having to go through such machinations would significantly drag down the value of real estate.  
> **username_33**: @LocalFluff Alright. I'll play out your switcheroo game. A pays B \$40000. B pays C \$40000. C pays A \$40000. Technically no money needs to switch hands to pay for this right? That is wrong. We cannot feasibly assume the three houses are identically worth \$40000. Therefore, there is an amount that A had to put forth to make the sale become equal. That is to say, he had to cough up extra money to afford \$40000 in the first place (I'm assuming bartering is illegal when the houses are unequal). Therefore, if A doesn't have the money... they can't move... ever.  

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### Answer by username_36 on 2017-03-21. Score: 12

Mandating a house be sold at last price sold does not mean that people value it at that sticker price. I could mandate that water bottles only be bought for $1,000,000. This does not mean anyone would buy. I'd just be stuck with a bottle that I don't value.

Similarly, setting price floors on the housing market would mean many owners will be stuck with homes.

It's also important to note that the market devaluation of a home only matters to owners that are planning on selling. If I bought a house for \$200k and the market crashes the day after, I still VALUE the house at some amount > \$200k. It does not matter to me that the market price is lower because I still have the exact same home. If anything, permanent home owners should really like the idea of homes being devalued because it means lower property tax liability.

Sure, bubble bursts tend to have adverse effects on many other markets. But these are separate issues altogether.

A previous answer has already covered the emerging black market. This also happens in NYC with low-income housing regulations.

> **Comments:**
> **username_0**: Whenever did you hear a macro economist use the word "value"??? No, they are cash counters. Bookkeepers of "economic activity". But what I try to ask here is if  a housing debt bubble crash wouldn't be made impossible if no one could sell his house to a lower PRICE than it was bought for? Regardless of values. And if it is bad, what bad things would happen?  
> **username_37**: I work in macroeconomics and we talk about "value" a lot. On a quick count, the word "value" appears 1659 times in the Australian System of National Accounts manual, i.e. about 3x/page. Importantly, such "values" are based on consensual transactions - i.e. what people are actually selling for. If nobody wants to buy your house for a million dollars, then its value isn't 1m no matter what the law says.  
> **username_38**: If the law passes, you can be sure that mortgage lenders would institute a kind of margin call for the loans.  

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### Answer by username_12 on 2017-03-21. Score: 11

> If the housing bubble would burst in Scandinavia as it has done in many other places the recent decade, certainly all banks will immediately be wiped out and millions of Scandinavians will become completely destitute for the rest of their lives with unpayable debts and no property to match it as a deep depression sets in.

Firstly, it's not *that* bad, provided you have functioning central banks to bridge the banks' credit position.

But consider what normally happens when people are unable to make loan payments: the bank eventually repossesses the house and sells it on. Often for a discount because they're in a hurry to convert it back into capital. Now suppose they're unable to sell it due to price regulation laws, but the market has collapsed. What happens? The bank is stuck. They need capital to make loans, but they have houses instead. They still need bailing out.

(Note: if you jack up inflation to double-digit percentage, suddenly the house resale price law becomes less of a problem.)

In the end, you may end up having to [demolish the houses](http://www.dailymail.co.uk/news/article-2531852/Exorcising-Irelands-ghost-estates-Demolition-begins-housing-projects-built-economic-boom-left-country-300-000-homes.html). Don't forget that houses, unoccupied, are a wasting asset: they require maintenance. The extreme case of this is probably Detroit.

So one extremely likely outcome of your minimum resale price law is that habitable houses get demolished because they cannot be sold at their minimum price.

> **Comments:**
> **username_0**: Instead of demolishing the houses, the banks would simply hold them empty since they cannot legally sell them. It doesn't hurt their balance sheets at all since the government, with the force of law, guarantees that they never can be sold at a loss. Best bad loan ever! Just let it sit there on the balance sheet. Houses empty or not, who cares? The crash was avoided, my law succeeded. Maybe the bank could rent them out at corresponding 0.8% mortgage rate. Where else would people try to live? Sweden is a cold rainy place.  
> **username_4**: @LocalFluff So you're a bank with \$10M of houses that you can't sell, and \$10M of debts you need to pay to not go bankrupt. And you can't sell the houses to pay the debts so you go bankrupt. And then you give the houses to your creditors who are like "wtf am I supposed to do with these houses?" because they're now in the same position you just were (before you went bankrupt).  
> **username_32**: @LocalFluff ^^^ what immibis is describing is called a 'toxic asset' Toxic assets are very, very bad  
> **username_12**: @LocalFluff "crash was avoided" not necessarily - as Venezuala are discovering, if you impose price controls then suddenly the market stops functioning instead. You'd probably end up with an explosion in the 99-year-lease market to hack around it.  
> **username_0**: @pjc50 Isn't there an important difference between price controls on consumer goods, and price control on durable assets and paper assets, such as houses and stocks? Government price controls of the latter, by imposing negative interest rates, is what totally dominates the price level and price trend in modern times, obviously. What if people lease or rent? That still won't make the housing bubble collapse under this law, would it?  
> **username_12**: Interest rates are not price controls, and I think the only Western country to actually have negative central bank rates was Switzerland?  
> **username_12**: Anyway, the key concept is *market clearing*: it doesn't matter what you set the price to if people aren't willing and able to buy at that price.  
> **username_39**: @LocalFluff: you'd end up with something similar to this: https://en.wikipedia.org/wiki/SAREB , which is a form of transferring bank's real debt to state debt.  

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### Answer by username_34 on 2017-03-22. Score: 7

Bursting bubbles don't destroy actual wealth. Instead, they *stop* destructive processes which convert actual wealth into imaginary wealth.

Suppose it would cost \$120,000 to build a house that's would be worth \$100,000 in non-bubble conditions,but market conditions in a bubble would cause such a house to sell for \$150,000. Building a house under such conditions would convert \$120,000 of actual wealth into \$100,000 of actual value plus \$50,000 of imaginary wealth. If the builder manages to sell the house for \$150,000 that will mean the buyer traded \$150,000 of real wealth for \$100,000 of real value and \$50,000 of imaginary wealth.

As long as the bubble lasts, people can keep passing the imaginary wealth around and pretend it's real wealth, but there's no way to turn such imaginary wealth into real wealth. The act of building the house will have destroyed \$30,000 of real wealth, and no matter how much higher prices might go in the bubble, total net profit among all buyers and sellers (assuming for simplicity nobody does anything with the house except buy and resell it) will be -$30,000. Any profit anyone might make buying and selling the house will be offset dollar for dollar by a loss by someone else down the line.

While it may look like bursting bubbles cause people to lose money, the reality is that it's the formation and inflation of bubbles--where it *looks* like people are making money--that actually destroy wealth. As the bubble gets bigger, both the amount of imaginary wealth created and the amount of actual wealth destroyed are prone to increase exponentially. Although the bubble going may protect some market participants from losses, it can only do so at the by causing other market participants to lose even more.

> **Comments:**
> **username_34**: @nocomprende: Yup.  The key point is that the *real* wealth disappears while the bubble is growing, so trying to keep prices up will do nothing to protect it.  
> **username_34**: @nocomprende: I've very seldom seen things described in such terms, but the fundamental problem with bubbles is that they shift resources away from producing things whose value would exceed the production cost, to things whose real value is below the production cost.  Wealth is destroyed the moment the resources are committed to the latter items.  I like the musical chairs analogy; perhaps someone is replacing groups of two ordinary chairs for one fancy-looking one.  While the music is going, everyone thinks this will be a good change for them since they'll get a fancy chair instead of...  
> **username_34**: ...an ordinary one.  But if there were 100 players, and 100 ordinary chairs to start with, each such replacement would be guaranteed to leave *someone* without a chair.  
> **username_34**: @nocomprende: Speculators who gamble *with their own money* will either make markets function more efficiently, or will lose an amount of money that exceeds the harm they cause to the market.  People who speculate recklessly with their own money may damage the market a little bit, but they'll run out of money before they damage it very much.  The real problems arise when people are allowed to place bets that they can't cover, which effectively means they're playing with other peoples' money.  There's no limit to the mischief that can cause if it's not punished severely.  

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### Answer by username_35 on 2017-03-21. Score: 6

There will be a rapid rise in artificial schemes to get round the letter of the law. For example, an agent may charge you 90% of the minimum legal sale price to officially register your house as uninhabitable and obtain a compulsory demolition order for it. A new house built on the same site would not have any previous price history, so it could be sold for say 10% of its true market value, plus a large one-time charge (non-negotiable, of course!) for a "new-building insurance policy" or some such terminology.

Exploiting such loopholes in the law won't necessarily benefit the bulk of the population, but they would benefit the minority with the expertise to create the work-rounds - there will always be *some* property owners for whom taking a financial loss is a better option than not being able to sell at all, who can be exploited.

> **Comments:**
> **username_0**: In Sweden the government since years is already desperately trying to get some temporary container houses built and to force small garden house owners to rent them out. But nothing of that has worked, because 50 year old "ABBA"-regulations require top quality only of all housing everywhere at any cost always everywhere with no regard to anything else. The only thing being built are a few luxury houses and a concert hall (and thousands of gypsy tents). You can safely ignore the possibility of an increased housing supply! The laws truly have enormous effect, they cannot be ignored by anyone.  

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### Answer by username_40 on 2017-03-22. Score: 4

This would be a catastrophically bad idea. The next time the economy turns down, what happens?

Workers who own houses for which they cannot find a buyer at the same price they paid for the house, will be unable to move house. They will therefore be unable to take up employment elsewhere. So you have compounded an economic downturn with an artificial restriction on the local availability of the staff that a company might wish to hire! I can't imagine any other move that might make it *harder* to recruit staff as a recession bites and unemployment rises.

Surely, *anything* which restricts labour mobility within a nation's borders can only be a bad thing. It should therefore be as easy as possible for someone to sell a house in one location and buy a house in another, as the government can make it. Here in the UK, we have a silly tax on house purchases called stamp duty. One consequence is that it typically costs one 3% of the purchase cost of one's house, to re-locate. Therefore, it is an incentive to stay put, rather than respond to an offer of a better-paid or more desirable job elsewhere. Or, if an employer is desperate to recruit, it will have to somehow compensate its new recruit for that person's tax burden when he moves.

Back to this crazy idea: if one cannot sell one's house because nobody will pay the previous price, and it's illegal to cut the asking price, then the only legal option will be to rent it out instead. So you will create a nation of amateur landlords, mostly handling matters badly because they don't want to be landlords at all. I also imagine that insurance on houses will become several times more expensive, if not completely unobtainable, because there's one obvious way to get one's money out as cash. Insure the house for its previous purchase price / legally mandated minimum "worth", and then arrange for it to burn down.


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### Answer by username_41 on 2017-03-21. Score: 3

Price is the thing that balances supply and demand, if you fix prices artificially low then you create supply shortages. If you fix them artificially high you create demand shortages.

So people who want/need to sell their houses in an area where demand has dipped would be unable to do so. Even in areas where natural demand had not dipped buying a house would become a much ricker proposition further depressing demand.

I suspect that the net result of all of this is that houses throughout the country would quickly become unsellable.

There would likely be an explosion in the rental market as unsellable houses get rented out instead.

Banks would have to develop new departments to handle renting out the unsellable properties they reposessed

The government would have to figure out what the heck to do about valuing unsellable houses for inheritance tax purposes and what to do when the remaining assets of the owner were not enough to cover the inheritance tax.

> **Comments:**
> **username_0**: But each and every house in Sweden is very much more expensive now than it was 20 (or 2) years ago. It's more here and less there, but there exists no area that's in less demand than before. Automatic profit from maximizing ones own debt at ever diminishing interest rate, and the guarantee that every house bought never could result in a loss. Banks don't need to sell or rent our empty houses, their legal minimal valuation remains intact on the balance sheet. And in no case did that legally minimal valuation decrease, since it never was sold for a price lower than the debt it was mortgaged for.  
> **username_4**: @LocalFluff That's not what the question is asking though. The question is asking what will happen if you *force* prices to be high when they would otherwise be dropping.  

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### Answer by username_42 on 2017-03-25. Score: 1

A point that doesn't yet seem to have been made is that banks and other mortgage lenders would have to stop lending as soon as such a law was proposed, never mind enacted, and that would in itself cause the housing market to collapse. A bank will lend you €320,000 to buy a €400,000 house because they know that if you default on your payments and they have to repossess the house, they can recover the loan value by selling the house, even if they can't get as much as you paid for it. That's why you (usually) have to put down a deposit for a certain percentage of the purchase price, and the bank won't lend you the full amount. If they're not allowed to sell it for less than €400,000, even though they only need to recover €320,000, then they may well be unable to sell it at all and be stuck with both an unpaid loan and an unsellable house. (Yes, I know that Sweden doesn't use the euro, but it's more concise and more widely applicable to use euro as the currency in my example.)


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### Answer by username_43 on 2017-03-22. Score: -3

One of the worst ideas I have ever heard. All negative consequences, almost no positive ones. ANY attempt by government to restrict prices (whether by floor or ceiling or anything else) ALWAYS has perverse bad effects; it always causes worse problems than the problem it is trying to solve. A free market works best when all members of the market are FREE to decide what price they are willing to pay, or receive, for a particular good. Government sticking its nose into that transaction always makes at least one participant in the transaction worse off, usually both, and the economy as a whole always suffers.

It's like a politician on campaign promising "I will reduce taxes, increase government spending, and reduce government debt!" That never works, EVER.

> **Comments:**
> **username_44**: Bad answer, but I can't downvote. Price controls are sometimes necessary, but they still don't work in this case.  
> **username_16**: I do not think the statements "NY attempt by government to restrict prices (whether by floor or ceiling or anything else) ALWAYS has perverse bad effects" [acording to which welfare criterion?], or " the economy as a whole always suffers" can be rigorously defended.  
> **username_45**: Any action has perverse bad effects. While this idea is not good,  
> **username_7**: You haven't backed up any of your statements with any sort of logical analysis, documentation, or authoritative reference.  What you've written just a rant.  
> **username_4**: Agree with other commenters: Price restrictions can have bad effects. This particular price restriction will certainly have bad effects. Some other price restrictions don't, especially if the price was not based on any real cost to begin with (*cough* often rent *cough*)  

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