As I mentioned in previous posts, we're currently searching for an apartment to buy. If we don't find anything before we go to Rio it's fine, but we're investigating to see what's in the market, and if there's an affordable apartment that we like, we will not wait 2 years to get it. Right now we've found one that we may like, and we've even made an offer, but things are still pretty much in the air.
As I said, the whole selection process deserves another post, but right now I'd like to talk about apartment prices, their negotiations, and economics in general. And also how the experience of playing in a Massive Multiplayer Online game helps a lot as an Economics case study, for apartments and for the world in general.
Apartment prices in Spain are still stupidly high compared to people's salaries, but right now they're reaching a level where you can consider to buy one without sacrificing your first-born to the bank. Second hand apartments are still the only option because, with a few exceptions, new apartments are owned by banks. Bank managers (as in bank owners and directors, not office workers nor office directors) know that the prices have gone down and nobody is even able to consider paying such prices for new apartments, but if they lower the prices of new apartments they need to write down that they lost money. Of course, they'd prefer to rape their mothers before admitting that they screw up big time and that they have thousands of useless empty houses that give no benefit, so instead they don't lower the prices and maintain a price bubble.
They hope that the prices will go up again and they will get a benefit. This may happen, but it may take 50-100 years (which is how many years may be needed to get back to a situation in Spain where most people not only can easily buy houses, but can also eat afterwards). Meanwhile, our friendly Spanish government gives them our money (recovered from us through taxes) so they can continue operating without having to get money from selling that big amount of useless cheap houses.
So, we're left with the second-hand house market.
In there, things are currently interesting. Prices were not able to resist the evident difference between supply and demand, and they have plummeted quite a lot. Just 7 years ago it was normal to pay 500.000 euros for a small hole in a wall, and now it is reasonable to get decent places for 200.000 or less (depends on size of apartment, situation, age, state, etc.).
Now we're in the process of negotiating the price for an apartment we consider as an option.
Negotiating prices, reading the market tendencies and the economy in general reminds me a lot about the time I was playing Lineage 2. Lineage 2 is a Massive Multiplayer Online Role-Playing Game (or MMORPG for short, pronounced like yhatzee does). You have a permanent world where you log in and your character appears. Levelling up and progressing through Lineage 2 is an extremely hard task (or it was when I was playing) that it's not easy achievable. (all the following comments are based on my experiences of the game when I was playing it, before 2008).
The problem I faced when I was playing Lineage 2, is that to level up you need to invest a lot of money in resources and equipment. And the process of levelling up does not reward you with equivalent money. Basically, to level up you need to lose big amounts of in-game money. To be fair, there are ways to get money levelling up and hunting monsters, but they require you to play for 8 hours straight, together with more people, and to limit usage of resources to a minimum. Even like this, profits are minimal. In this world it is true that permanent growth is possible, since when you kill a monster more money gets added to the world. Anyway, this creates funny economic dynamics.
To put it in perspective...once you reach level 20, the equipment that you will need to start using at that moment to be able to fight people and monsters of your level costs close to 2 millions in the internal currency. Once you get to level 20, if killing monsters has reported you around 100.000 of the internal currency count yourself as lucky.
As you can see, there is a bit of a gap between standard income and necessary money to survive. This only gets worse in later levels, since after level 40 the equipment you need is not even sold in game shops, you need to craft it from pieces that monsters drop. Getting all required pieces takes usually more time than levelling up to the point where the equipment you were trying to create is now useless to you.
As a result of all of this, the basis of living in that world is player commerce. Players have the option to trade things and even open shops that offer things and services (like crafting services). Capitalism is king, and prices evolve with the time depending on demand and on what is affordable by most players. What's more, thanks to the constant influx of money to the economy from the players, the world is in a permanent state of inflation, with very strange and particular cases of devaluation. The ones that got rich keep getting richer, and new players will have it very hard to reach a stable economic situation where you don't need to save every single coin.
This really teaches you the workings of the real world, if you want to survive inside the game. For example inside the game I managed to establish a small business of selling helmets. These helmets were needed to complete a set that gave some extra stats for players between level 40 and 52.
However, I did not own any helmets. I did not have the pieces and materials that allowed you to build such helmets. I did definitely not have the ability to even finish building these helmets.
What I was doing was buying materials in a city, for a price that I knew was rather cheap. I bought them in bulk, and when I had my calculated quotas of materials then I proceeded to contract players who had shops to create composite materials. Finally, I contracted someone who was able to made the actual helmet from the composite materials and pieces.
Once I had the helmet (or helmets), I proceeded to go to another city where this helmet had the biggest price (because prices changed from city to city, given the fact that reaching each city required different levels and hours of play). In there I opened a shop and sold the helmet.
Recollecting and buying all the composite materials and pieces, and then contracting other players to build composites and the final helmet was a long process, and it costed around 1.2 millions in the game currency.
However, the completed helmets were sold for prices between 2 and 3.5 millions (depending on the moment). In the worst case, I got 166% of the invested money back. In the best case, 290%. And I did absolutely nothing. I was just an intermediate that knew prices of materials and prices of the finished item, and knew which margins were acceptable. Sure, I wasted a lot of in-game time on this, but it was usually time I was studying at university, and meanwhile my computer was on with the automatic shop activated so other players could sell me materials or buy my helmets.
Sometimes I got people competing, trying to sell helmets next to me for 1.5 million and similar things.I just bought all their helmets with my investment money and sold them for 2.5, getting me an easy, fast and clean benefit of 1 million per helmet.
So, this game showed quite easily a number of points that you always need to consider in doing businesses and buying things, especially when their prices do not match the price of materials used or hours invested in them:
1-Living is expensive, and working hard does not guarantee that you will have money or that you'll be able to afford necessary things.
2-In order to win lots of money, you need to start with lots of money.
3-Without laws regulating business, established companies can ruin any competitors by just buying their stock to resell it at inflated prices or by selling at a loss until the competitors run out of business.
4-Try to avoid as many distributors, agents and other intermediaries between the maker of the product and you. Each step makes the final product stupidly more expensive than the real cost of making it.
5-Monopolies will abuse their position of power and inflate prices.
6-Even with inflated prices and monopolies, customers will call bullshit when the price is too much, and they will opt to live without your product if necessary.
There are more lessons that you can take from the game, but there's no need to list all of them. It's just to show that these games are great examples of pure capitalism (and how incredibly crappy it is for everyone that doesn't have a great idea or control over some particular market). It also shows the catastrophes that can happen in such unregulated markets. (there's a lot of other MMO games that can show you examples of this).
Regarding apartments, what the game taught me is that the price of such things is as much as people are willing to pay. Building an apartment does not cost their actual prices. The apartment prices depend on the idea of a fair price that most people will have in their minds, and prices will change only when people think they should change.
At the moment, every week or two I get notifications that some apartment I was interested dropped 10.000 euros, or even 20.000.
I believe that no matter what newspapers and government are trying to advertise, people still can't pay for apartments, and what's more, people still believe they should not pay for such prices and that prices will go down. There's a big advertising campaign to change people's minds, but I don't believe it's working yet.
I want an apartment where we can live, and I don't care if the prices will drop more, or will increase later. I just want our own place. However, it is an interesting moment to buy, and it is funny to see all the people trying to convince you prices might rise a lot any time next week...
Maybe I'm wrong and prices will really increase soon....but somehow I doubt it.
As I said, the whole selection process deserves another post, but right now I'd like to talk about apartment prices, their negotiations, and economics in general. And also how the experience of playing in a Massive Multiplayer Online game helps a lot as an Economics case study, for apartments and for the world in general.
Apartment prices in Spain are still stupidly high compared to people's salaries, but right now they're reaching a level where you can consider to buy one without sacrificing your first-born to the bank. Second hand apartments are still the only option because, with a few exceptions, new apartments are owned by banks. Bank managers (as in bank owners and directors, not office workers nor office directors) know that the prices have gone down and nobody is even able to consider paying such prices for new apartments, but if they lower the prices of new apartments they need to write down that they lost money. Of course, they'd prefer to rape their mothers before admitting that they screw up big time and that they have thousands of useless empty houses that give no benefit, so instead they don't lower the prices and maintain a price bubble.
They hope that the prices will go up again and they will get a benefit. This may happen, but it may take 50-100 years (which is how many years may be needed to get back to a situation in Spain where most people not only can easily buy houses, but can also eat afterwards). Meanwhile, our friendly Spanish government gives them our money (recovered from us through taxes) so they can continue operating without having to get money from selling that big amount of useless cheap houses.
So, we're left with the second-hand house market.
In there, things are currently interesting. Prices were not able to resist the evident difference between supply and demand, and they have plummeted quite a lot. Just 7 years ago it was normal to pay 500.000 euros for a small hole in a wall, and now it is reasonable to get decent places for 200.000 or less (depends on size of apartment, situation, age, state, etc.).
Now we're in the process of negotiating the price for an apartment we consider as an option.
Negotiating prices, reading the market tendencies and the economy in general reminds me a lot about the time I was playing Lineage 2. Lineage 2 is a Massive Multiplayer Online Role-Playing Game (or MMORPG for short, pronounced like yhatzee does). You have a permanent world where you log in and your character appears. Levelling up and progressing through Lineage 2 is an extremely hard task (or it was when I was playing) that it's not easy achievable. (all the following comments are based on my experiences of the game when I was playing it, before 2008).
The problem I faced when I was playing Lineage 2, is that to level up you need to invest a lot of money in resources and equipment. And the process of levelling up does not reward you with equivalent money. Basically, to level up you need to lose big amounts of in-game money. To be fair, there are ways to get money levelling up and hunting monsters, but they require you to play for 8 hours straight, together with more people, and to limit usage of resources to a minimum. Even like this, profits are minimal. In this world it is true that permanent growth is possible, since when you kill a monster more money gets added to the world. Anyway, this creates funny economic dynamics.
To put it in perspective...once you reach level 20, the equipment that you will need to start using at that moment to be able to fight people and monsters of your level costs close to 2 millions in the internal currency. Once you get to level 20, if killing monsters has reported you around 100.000 of the internal currency count yourself as lucky.
As you can see, there is a bit of a gap between standard income and necessary money to survive. This only gets worse in later levels, since after level 40 the equipment you need is not even sold in game shops, you need to craft it from pieces that monsters drop. Getting all required pieces takes usually more time than levelling up to the point where the equipment you were trying to create is now useless to you.
As a result of all of this, the basis of living in that world is player commerce. Players have the option to trade things and even open shops that offer things and services (like crafting services). Capitalism is king, and prices evolve with the time depending on demand and on what is affordable by most players. What's more, thanks to the constant influx of money to the economy from the players, the world is in a permanent state of inflation, with very strange and particular cases of devaluation. The ones that got rich keep getting richer, and new players will have it very hard to reach a stable economic situation where you don't need to save every single coin.
This really teaches you the workings of the real world, if you want to survive inside the game. For example inside the game I managed to establish a small business of selling helmets. These helmets were needed to complete a set that gave some extra stats for players between level 40 and 52.
However, I did not own any helmets. I did not have the pieces and materials that allowed you to build such helmets. I did definitely not have the ability to even finish building these helmets.
What I was doing was buying materials in a city, for a price that I knew was rather cheap. I bought them in bulk, and when I had my calculated quotas of materials then I proceeded to contract players who had shops to create composite materials. Finally, I contracted someone who was able to made the actual helmet from the composite materials and pieces.
Once I had the helmet (or helmets), I proceeded to go to another city where this helmet had the biggest price (because prices changed from city to city, given the fact that reaching each city required different levels and hours of play). In there I opened a shop and sold the helmet.
Recollecting and buying all the composite materials and pieces, and then contracting other players to build composites and the final helmet was a long process, and it costed around 1.2 millions in the game currency.
However, the completed helmets were sold for prices between 2 and 3.5 millions (depending on the moment). In the worst case, I got 166% of the invested money back. In the best case, 290%. And I did absolutely nothing. I was just an intermediate that knew prices of materials and prices of the finished item, and knew which margins were acceptable. Sure, I wasted a lot of in-game time on this, but it was usually time I was studying at university, and meanwhile my computer was on with the automatic shop activated so other players could sell me materials or buy my helmets.
Sometimes I got people competing, trying to sell helmets next to me for 1.5 million and similar things.I just bought all their helmets with my investment money and sold them for 2.5, getting me an easy, fast and clean benefit of 1 million per helmet.
So, this game showed quite easily a number of points that you always need to consider in doing businesses and buying things, especially when their prices do not match the price of materials used or hours invested in them:
1-Living is expensive, and working hard does not guarantee that you will have money or that you'll be able to afford necessary things.
2-In order to win lots of money, you need to start with lots of money.
3-Without laws regulating business, established companies can ruin any competitors by just buying their stock to resell it at inflated prices or by selling at a loss until the competitors run out of business.
4-Try to avoid as many distributors, agents and other intermediaries between the maker of the product and you. Each step makes the final product stupidly more expensive than the real cost of making it.
5-Monopolies will abuse their position of power and inflate prices.
6-Even with inflated prices and monopolies, customers will call bullshit when the price is too much, and they will opt to live without your product if necessary.
There are more lessons that you can take from the game, but there's no need to list all of them. It's just to show that these games are great examples of pure capitalism (and how incredibly crappy it is for everyone that doesn't have a great idea or control over some particular market). It also shows the catastrophes that can happen in such unregulated markets. (there's a lot of other MMO games that can show you examples of this).
Regarding apartments, what the game taught me is that the price of such things is as much as people are willing to pay. Building an apartment does not cost their actual prices. The apartment prices depend on the idea of a fair price that most people will have in their minds, and prices will change only when people think they should change.
At the moment, every week or two I get notifications that some apartment I was interested dropped 10.000 euros, or even 20.000.
I believe that no matter what newspapers and government are trying to advertise, people still can't pay for apartments, and what's more, people still believe they should not pay for such prices and that prices will go down. There's a big advertising campaign to change people's minds, but I don't believe it's working yet.
I want an apartment where we can live, and I don't care if the prices will drop more, or will increase later. I just want our own place. However, it is an interesting moment to buy, and it is funny to see all the people trying to convince you prices might rise a lot any time next week...
Maybe I'm wrong and prices will really increase soon....but somehow I doubt it.
