Glad you liked my eg
Solving the dispute over the best 10 properties. Good question.
This is where their value above the other blocks should come into play.
If each property is 'worth' 100,000 units of currency but there are 10 that have better views of the water, not that you;d care on an island so instead lets say these 10 were closest to the coconut trees making them worth 150,000 units.
Rather than everyone getting in debt between 100,000 and 150,000 they would be better of if they discovered which 10 were willing to pay the additional 50,000 units and just those people get into debt so that when the bank ship drifts away into the sunset they have only scammed 500,000 from the island instead of 10.5 million.
I know this doesnt work in practice because once the remainder realise that they dont have to pay anything for their block they will all want to be the ones who own the better blocks as they see them as only costing 50,000 units.
And once again you get the free market economy where they bid against each other up to the level of credit the banks will allow them.
This example shows that property values are almost entirely decided by the amount of money banks are willing to lend people and it wont stop until they start becoming concerned about the sustainability of it all and tighten their policy. Once that happens watch out below.
The same thing happened in Florida in the 1920's. Financial Institutions were fiercely lending money to Americans to get into the Florida land craze. People borrowed whatever they could. It didnt matter as they figured they could sell half the land in a couple of years if they had to and pay the entire loan back. Banks didnt care as they figured they could always foreclose on the loan and sell to the next person.
And then it crashed, investors just walked away and many of the banks went bust because they'd lent on very low LVRs and small deposits. Florida began its depression early. (it took 35 years for prices to 'catch up')
In Australia we wont see the same scale of effect but if the exuberance continues much longer it could be still be pretty nasty. Costello and Macfarlane realise this but they're in a catch 22 position.
Never have we seen price increases like we;ve seen plateau. That just isnt possible. The big question is how bad will it be.