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I'm no economist but it seems blindingly obvious. To be an interesting financial investment, a house must appreciate faster than other means of savings. If that

by creato 7y ago

I'm no economist but it seems blindingly obvious. To be an interesting financial investment, a house must appreciate faster than other means of savings. If that happens, houses will inevitably be unaffordable, because they rise in value faster than people can save to buy them.

Macross8299 7y ago
That assumes an "interesting" financial investment has to appreciate faster than all other investments that exist and that nobody would ever trade returns for less risk. People buy bonds, so I don't think that maximizing ROI is always necessarily the criteria for a desirable investment.
- creato 7y ago
  So you think people that want to buy a house just need to take on more riskier investments before buying a house? Get lucky, buy a house, get unlucky, ...?
cle 7y ago
Thanks! Meta-observation: to me, nothing in economics or finance is "blindingly obvious". Many economic phenomena seem obvious but in reality are way more complex than could be represented by any model that I could understand. Your explanation makes sense at some level, but I don't have much confidence in it, because all I can do is wonder what other mechanisms interact with the mechanism you've described, and what the net impact is.
viraptor 7y ago
I'm not sure why you're looking only at the house price change. To be a good investment, the (price change + rent - mortgage repayment - maintenance) value has to be higher than other means of saving. Thus may be true even if the house itself losses some value.
sigstoat 7y ago
and yet, reasonable people who know what they're doing buy bonds with negative interest rates. the financial world is more complicated than you realize.
benchaney 7y ago
You have your causality hopelessly backwards. Housing did not become a interesting investment because people chose to invest in it. People chose to invest in it because it was an interesting investment.
sisu2019 7y ago
A stronger case would be "it must be more profitable than the alternatives with the same risk" but you skipped a step and went right to "appreciate faster" which is not the only way it could be profitable. In fact "flipping houses" to make a living at this scale is an artifact of your current time and place which is the US in a massive inflationary bubble [1] We libertarians have been beating the inflation drum for decades now and been largely ignored and / or laughed at. Maybe it's time to revisit how adding trillions and trillions to the economy every year could maybe possibly lead to higher prices in "inflation hedge" type goods.[2] [1] https://thumbor.forbes.com/thumbor/960x0/https%3A%2F%2Fblogs-images.forbes.com%2Fjessecolombo%2Ffiles%2F2018%2F08%2FNetworthGDPIndex.jpg https://thumbor.forbes.com/thumbor/960x0/https%3A%2F%2Fblogs... [2] https://mises.org/library/housing-too-good-be-true https://mises.org/library/housing-too-good-be-true

by creato 7y ago

Macross8299 7y ago

That assumes an "interesting" financial investment has to appreciate faster than all other investments that exist and that nobody would ever trade returns for less risk. People buy bonds, so I don't think that maximizing ROI is always necessarily the criteria for a desirable investment.

creato 7y ago
So you think people that want to buy a house just need to take on more riskier investments before buying a house? Get lucky, buy a house, get unlucky, ...?

cle 7y ago

Thanks! Meta-observation: to me, nothing in economics or finance is "blindingly obvious". Many economic phenomena seem obvious but in reality are way more complex than could be represented by any model that I could understand. Your explanation makes sense at some level, but I don't have much confidence in it, because all I can do is wonder what other mechanisms interact with the mechanism you've described, and what the net impact is.

viraptor 7y ago

I'm not sure why you're looking only at the house price change. To be a good investment, the (price change + rent - mortgage repayment - maintenance) value has to be higher than other means of saving. Thus may be true even if the house itself losses some value.

sigstoat 7y ago

and yet, reasonable people who know what they're doing buy bonds with negative interest rates. the financial world is more complicated than you realize.

benchaney 7y ago

You have your causality hopelessly backwards. Housing did not become a interesting investment because people chose to invest in it. People chose to invest in it because it was an interesting investment.

sisu2019 7y ago

A stronger case would be "it must be more profitable than the alternatives with the same risk" but you skipped a step and went right to "appreciate faster" which is not the only way it could be profitable. In fact "flipping houses" to make a living at this scale is an artifact of your current time and place which is the US in a massive inflationary bubble [1] We libertarians have been beating the inflation drum for decades now and been largely ignored and / or laughed at. Maybe it's time to revisit how adding trillions and trillions to the economy every year could maybe possibly lead to higher prices in "inflation hedge" type goods.[2] [1] https://thumbor.forbes.com/thumbor/960x0/https%3A%2F%2Fblogs-images.forbes.com%2Fjessecolombo%2Ffiles%2F2018%2F08%2FNetworthGDPIndex.jpg https://thumbor.forbes.com/thumbor/960x0/https%3A%2F%2Fblogs... [2] https://mises.org/library/housing-too-good-be-true https://mises.org/library/housing-too-good-be-true