4 ms·
There is no economic reason that housing should track inflation in the long term because land in areas of economic grown becomes more valuable over time. It is
by aliston 8y ago
There is no economic reason that housing should track inflation in the long term because land in areas of economic grown becomes more valuable over time. It is driven by things like wealth generation, local incomes, outside investment, immigration, supply restrictions and so on. Ive read some estimates that put the long-term real return at ~2%, which could be competitive with stock returns with the typical modern 5:1 leverage.
- Retric 8y agoDepends on how you measure inflation, but economic growth over the long term tends to be overstated. Consider 2000 years ago people where producing beef. At 2% economic growth we would be producing 1.5 * 10^ 17 cows or something of equivalent value. Further, many areas like Detroit have seen a reduction in land values over significant time periods.
- aliston 8y agoI don’t really understand your point. You’re basically saying that any exponential return blows up in the limit, which means that any investment rule like a 6% return from the stock market is unsustainable. That may be, but it’s not particularly actionable or useful. The bottom line is that for most of modern history, real estate as a whole has been a better investment than some theoretical instrument that tracks inflation. Your point about Detroit is like arguing that stocks are a bad investment because Enron collapsed.
- Retric 8y agoStock dividends work just fine in a static economy. A field that produces X produce for 100 years is not exponential growth even with a steady x% annual ROI. As to land look up an acre of Iowa farmland. It’s not worth that much in comparison to a an acre near a city. But to see that growth you need to predict were massive migration and infrastructure investments take place while subtracting taxes.
- aliston 8y agoSo your view of the stock market is that the only sustainable returns are from dividends? Capital investment, new market opportunities and technologies, ipos and so on are just unsustainable short term noise?
- Retric 8y agoCompanies fail. Without dividends the long term value of all companies is zero. In the short term, like my lifetime, growth stocks are great. But, you need dividends at some point or what does stock ownership actually provide?
- aliston 8y agoRegarding Iowa farmland... https://www.extension.iastate.edu/agdm/wholefarm/html/images/c2-70fig1.gif https://www.extension.iastate.edu/agdm/wholefarm/html/images... But to your broader point, predicting where growth will occur, is literally the definition of investing. Investment is the allocation of capital towards areas of growth. Luckily, the global economy has generally grown over time, which means that generally investments such as real estate tend to grow as well, and faster than inflation. I’ve gotta say, I appreciate your thoughts and perspective, but you’re going to miss out on a lot of growth if you only believe in investing in utilities companies and TIPS.
- deleted 8y ago[deleted]
- Retric 8y agoInvesting is creating productivity, speculation is predicting market trends. The can both make you rich but they are different things. PS: I chose farm land specifically because it’s value relates to it’s use as a productive asset. In Gerlach, Nevada you can get land as cheap as $157 per acre. Now, if we start running out of space for solar panels it might be worth something some day but for now it’s really not.
- pascalxus 8y agoIncomes pay for housing. Therefore housing prices must always track incomes in the long long term because you can't pay more than 100% of your income to housing: it's impossible. Incomes tend to go up at roughly equivalent to inflation.