Why does home building in emerging economies create global prosperity?

In United States of America over 1,000,000 homes are often constructed and sold in one year. If you calculate how much money was paid to workers and material suppliers when the homes were sold for an average of $250,000, you will discover home building is the key to creating prosperity and is the force that drives the economy in United States year after year. Home building and home ownership are basic principles of the economic development strategy that created the enormous amount of employment and consumer demands that established the America manufacturing industry and a vast number of small businesses. Yes it is $250 billion dollars that is released into the economy creating an enormous demand for consumer products and services in just one year in United States and globally.

Consumer demand for products and services is what energizes an economy and creates prosperity. Financing home construction for the people of any nation with low interest rate home loans will bring prosperity to the people of that nation as the loan is funded and the money enters the market place and increases demand for goods and services.  Insuring home mortgages increases the number of lower income borrowers that become eligible, the largest group needing a home, has been a critical part of the success. The past economic theories about how increasing manufacturing employment  creates prosperity that fill economics books are ill founded and have failed to create prosperity. Funding new manufacturing by itself does not increase demand for goods and services. It is not possible to dramatically increase aggregate demand by the people for consumer products when they are paid minimum wages. Home building based on long term financing of homes for the working and the affluent dramatically will increase the demand for consumer products and jobs in many industries worldwide. It is the only process that provides the people the opportunity to manage their own lives and achieve their potential to become prosperous by investing in their own economy. This process becomes feasible when nations adopt tweleve economic principles that create prosperious economies.

TWELVE ECONOMIC PRINCIPLES THAT CREATE PROSPERITY 
Organizing and managing an economy according to the following principles permits the people of any nation to become very prosperous as they become employed and  invest in their own economy.

1.  PRIVATE PROPERTY RIGHTS – INVESTING IN THE ECONOMY. Establishment of Private Property Rights for individuals and businesses is the first principle of the natural law that must govern the sovereignty over any nation when attempting to create prosperity for all people.   Providing the clear and unequivocal right under the constitution of any nation for the people of that nation to own property is the key to creating prosperity. Any nation whose constitution does not provide for laws granting private property rights to the people prevents the people from borrowing and becoming prosperous by investing in their own economy and confines them to economic servitude to the governing authority. The lack of Protected Private Property Rights is creating the economic disparity between countries that is the driving force behind immigration.  

2.  JUDICIAL RECTITUDE – PROTECTS PRIVATE PROPERTY RIGHTS.   It is absolutely critical that the Private Property Rights be protected by the establishment and enforcement of a constitutional right guaranteeing such rights and the validity of legal contracts of title under the rule of the law. Precise terminology must be adopted for constitutional law and other legal documentation to eliminate ambiguous wording and reduce the number of legal conflicts that must be resolved in court. This also reduces the burden on judicial authorities in determining the rightful ownership and legal liens in the event of disputes. Reliance on the legal process is essential for the protection of the lender extending credit to prospective home buyers  and for the homeowner when entering into contracts.

3. THE WORKING AND AFFLUENT - CREDIT WORTHY BORROWERS The key financing principle that establishes the feasibility for making home loans in developing countries is the loaning of money initially to the people who are employed and those that are able to qualify for a loan to purchase a quality, modern home. These borrowers have established income records that show their ability to pay the mortgage payments. This reduces the risks to lenders and the number of defaults on home loans. Reducing risks increases the number of financial institutions willing to invest in home mortgages in developing countries. Mortgage insurance, insuring the lenders of repayment, also becomes more available. The credit worthiness of the people determines the strength of the economy of any nation where home building is the predominate industry that creates jobs.

4.  MOVING UP EFFECT - HOUSING UPGRADED FOR ALL PEOPLE. The purchase of new homes by the employed and the affluent creates vacancies when they move into their new home. This creates an opportunity for others to move up into the homes and apartments vacated by those that have moved into their new home. Those moving up into the homes vacated by the new home buyers also leave behind vacancies that become opportunities for others to move up into a better home or rental and the cycle repeats itself. It is very important to understand this phenomenon when attempting to provide homes for the homeless and the poor. The annual number of buyers changing homes and moving up into existing homes averages three times the number of new home buyers in most economies once the process begins to increase employment and wages. This process makes homes at the bottom of the economic scale available to those moving into a home for the first time. This is a process that increases the number of quality homes in every city eliminating the need to construct low end  or affordable housing. Housing becomes available as people move up  for first time owners that have become employed due to construction of new home homes in planned communities. 

5. OWNING APPRECIATING ASSETS – INCREASES NET WORTH OF OWNER. The solution to the problem of how to create prosperous nations in developing countries is the establishment of a home building industry where all the working people have the opportunity to purchase an appreciating asset. It is the process that  creates prosperity for all people in a nation whose laws include Protected Private Property Rights.    It is in essence a forced savings program that continues to increase in value over time. The most important characteristic of the process is that the money being borrowed from a bank is only for the specific purpose of buying an appreciating asset. The borrowed funds are based on appraisals and spent only for acquiring products and services that needed for the construction of a modern home and their share of public services. Money spent by governments, corporations or by the people for any other types of products or services will not increase the net worth of the people. Increasing the net worth of the people through the ownership of an appreciating asset is the essential requirement for the economy of any nation to become prosperous. It is the willingness of those with jobs to take risks and their credit which energizes every successful economy.

6. INSURED MORTGAGES – INCREASING THE NUMBER OF QUALIFIED BORROWERS. An important financing principle requires the incorporation of international mortgage insurance and reinsurance into the lending process for developing economies to increase the number of qualified buyers. Mortgage insurance greatly increases the number of potential lower income buyers that can qualify. It lowers the interest rate on the loan to the lowest achievable rate.  Lowering the interest rate is very important for this strategy to be hugely successful because this income group is the largest and has the greatest need. By this procedure international financial institutions are protected when extending credit to a subsidiary or a domestically owned bank in emerging economies. Foreign lenders can rely on the loan being backed by specific loan values based on appraisals in the local economy provided by the domestic banks. Some mortgage insurance companies in the United States are already insuring mortgages in other countries for international lenders. The funding of each mortgage for a specific home in a specific amount eliminates past corrupted attempts to fund development in emerging economies by making loans directly to governments and corporations.

7. GUARANTEED TITLE – ESTABLISHES LEGAL OWNERSHIP. The establishment and public acknowledgement and/or recording of the legal descriptions for private property are a fundamental requirement for private property ownership and transfer of land. In some countries this will require the establishment of legal descriptions for the land for the first time. It is now a very practical and precise engineering process made possible by the various Global Positioning Systems (GPS) that are currently available. Once any specific point is selected as the base line, measurements of what is thought to be the property boundaries can be taken utilizing standard engineering procedures and checked by additional GPS readings. In the event land that was formerly held by a government or large tract owner is sold for the development of homes and communities the seller must provide proof of ownership and the right to sell.

8. CONSTRUCTION WORKER – BECOME EDUCATED AND TRAINED. The construction of the homes for the employed whether they be teachers, policemen, government workers or any affluent group increases the number of people that must be educated and trained on the job in the real estate disciplines including construction, engineering, legal title, escrows, designs, appraisals, financing, and banking. Education coupled with the creation of jobs is the strength of this strategy which has been proven to be tremendously successful in the past as demonstrated by empirical evidence of the real estate experience in prosperous nations. Developers constructing homes will be able to invite members of other countries to participate in the training and take the education and experience home for the management of their own program.

9.  PROSPEROUS PEOPLE - NEW QUALIFIED BUYERS. The newly employed and those that are being trained on the job in the real estate disciplines become qualified for buying one of the homes vacated by others moving up or a new home for themselves. This further increases the number of homes to be constructed and the number employed that can afford a new home. This increase in employment also expands the demand for all types of consumer services and products domestically and globally as the income of the people from the construction of the homes passes through the hands of the people. This is what creates prosperity. The home loans are actually funding manufacturing through the creation of consumer demand.

10. GLOBAL EMPLOYMENT – DEMAND FOR CONSUMER PRODUCTS.  It is the increase in employment in the home building industry that provides the income for the people to be able to increase their demand for consumer products. This is what creates prosperous nations. As the capital expended for the land, construction of the building, acquisition of equipment and labor is released into the economy of a developing nation it passes through the hands of the people involved in the development, financing and construction. As they in turn make purchases the funds begin to turn over and over as they move through the economy creating a demand for consumer products and services many times greater than the original cost of the home even after paying taxes on each turn over  As the economy begins to expand in the developing countries the demand for skilled and educated people to work will increase in other countries as well. It creates demand for products and services many of which will not be initially available domestically within an emerging country. The demand for imports will impact the economies of other nations. The demand created by initially expending fifty billion dollars annually in a home building industry globally will succeed in creating prosperity and energizing the global economy where aid in equivalent amounts has consistently failed. Empirical evidence shows that when housing construction is booming in the United States imports increase drastically. When housing construction slows the economies of other countries are impacted.

11. HOME EQUITY – FINANCING SMALL BUSINESS LOANS. The increase in the value of the equity invested in the purchase of an appreciating asset such as a home or a parcel of land over time becomes the predominate source of collateral for personal loans. The equity in personal assets make it possible to borrow funds for financing the operation of privately owned small businesses. Small businesses are the principal employers in prosperous countries when the economy is based on Protected Private Property Rights. In countries where protected private property rights exist well over 66% of the employed work for small business. Home equity loans are the critical component for increasing the number of small businesses that are the driving force of every national economy where the people are truly prosperous.

12. GOVERNMENTS TAXING THE PROCESS – FUNDS THE SERVICES. Taxing the home building industry strengthens the viability of governments for the payment of loans whose funding provided for the construction of infrastructure, medical facilities, schools and supporting the needs of the people throughout the cities.  The increase in taxes also provides the capital for the repayment of loans used for construction of services and infrastructure needed for the home development such as streets, waste treatment and water treatment.  The home building process also includes fees to be paid to governments on the construction of each new home to fund the new homeowner’s share of the cost to extend and provide utilities and roads to each home.  It fact, through taxation which includes all sales tax, income tax and government fees charged at every level, the governments will receive 100% of the mortgage funds expended for development and construction of the homes over a period of  eight to ten years as the home loan proceeds move through the economy and are taxed at each turn over.