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Isn't it true by definition? If an asset stays affordable in the long run, then by definition it cannot be a good investment, as the definition of a good invest

Isn't it true by definition? If an asset stays affordable in the long run, then by definition it cannot be a good investment, as the definition of a good investment is an asset that increases in value faster than most other assets.

bluGill 5y ago
No, because a house is a hedge on inflation. Once the house is paid for it is rent free, so your retirement investments can be smaller for the same standard of living.
- maxlamb 5y ago
  Right, but then as a simple hedge against inflation there many alternatives. Also, that would mean in a deflationary economy like Japan in the last 30 years, housing would be a horrible investment.
  - bluGill 5y ago
    Correct on both counts.
zamfi 5y ago
In my argument, one view of the asset (“a unit of housing suitable for a family”) remains affordable, while another view of the asset (“this particular detached 1200 sqft house on this 5000 sqft lot”) outpaces inflation in value growth. The example I gave above is meant to illustrate this. “Housing” remains affordable — a family can still purchase a 1200 sqft unit in a desirable neighborhood for a reasonable amount of money. But the value of a particular house or apartment grows our[acing inflation because (of course, assuming more people want to live in that area—which all housing price growth is predicated on anyway) the demand on land is high, and a developer can come in and increase density on any particular lot. In other words, the cost of housing remains affordable while the cost of any particular house or apartment grows above inflation, because each particular unit reflects a claim on land, the comparatively scarce resource. Everyone needs housing, but not everyone needs a detached single family home on a half-acre lot. In other words, The piece that is missing from your assessment is that a house is two things: land and a structure on top; the value of the land can go up, ensuring a high return for the owner of the land+structure, even as new structures can offer fractional claims on that same land at a more affordable price. I’m happy to dig in further here if I’m still not being clear!
- maxlamb 5y ago
  Your examples still prove my point. In your first example, the house is a good investment but no longer affordable, and the high-density apartment is affordable but not a good investment. If the apartment becomes a good investment, then at some point even it becomes no longer affordable, i.e. an condominium/apartment in an expensive city like New York or SF. If it stays affordable forever then by definition it is not a great investment.
  - zamfi 5y ago
    What is your point exactly? Yes, the same house is no longer affordable, but “housing” is affordable because you can now buy an apartment at a reasonable price. The areas where housing is no longer affordable are the areas where you can’t buy any housing with the median income, not where the fanciest housing is inaccessible to the median income. What form that housing takes (detached house, apartment in a duplex, then 4-pled, then larger apt building) will change over time as density increases.
    - maxlamb 5y ago
      My point is that real estate cannot be a good investment and affordable at the same time in the long run. In your example, if the affordable apartment stays affordable the next 20 years then it’s not a good investment. In many cities that small apartment was good investment because now even those small apartments are no longer affordable (i.e downtown Denver, downtown Austin).

bluGill 5y ago

No, because a house is a hedge on inflation. Once the house is paid for it is rent free, so your retirement investments can be smaller for the same standard of living.

maxlamb 5y ago
Right, but then as a simple hedge against inflation there many alternatives. Also, that would mean in a deflationary economy like Japan in the last 30 years, housing would be a horrible investment.
- bluGill 5y ago
  Correct on both counts.

zamfi 5y ago

In my argument, one view of the asset (“a unit of housing suitable for a family”) remains affordable, while another view of the asset (“this particular detached 1200 sqft house on this 5000 sqft lot”) outpaces inflation in value growth. The example I gave above is meant to illustrate this. “Housing” remains affordable — a family can still purchase a 1200 sqft unit in a desirable neighborhood for a reasonable amount of money. But the value of a particular house or apartment grows our[acing inflation because (of course, assuming more people want to live in that area—which all housing price growth is predicated on anyway) the demand on land is high, and a developer can come in and increase density on any particular lot. In other words, the cost of housing remains affordable while the cost of any particular house or apartment grows above inflation, because each particular unit reflects a claim on land, the comparatively scarce resource. Everyone needs housing, but not everyone needs a detached single family home on a half-acre lot. In other words, The piece that is missing from your assessment is that a house is two things: land and a structure on top; the value of the land can go up, ensuring a high return for the owner of the land+structure, even as new structures can offer fractional claims on that same land at a more affordable price. I’m happy to dig in further here if I’m still not being clear!

maxlamb 5y ago
Your examples still prove my point. In your first example, the house is a good investment but no longer affordable, and the high-density apartment is affordable but not a good investment. If the apartment becomes a good investment, then at some point even it becomes no longer affordable, i.e. an condominium/apartment in an expensive city like New York or SF. If it stays affordable forever then by definition it is not a great investment.
- zamfi 5y ago
  What is your point exactly? Yes, the same house is no longer affordable, but “housing” is affordable because you can now buy an apartment at a reasonable price. The areas where housing is no longer affordable are the areas where you can’t buy any housing with the median income, not where the fanciest housing is inaccessible to the median income. What form that housing takes (detached house, apartment in a duplex, then 4-pled, then larger apt building) will change over time as density increases.
  - maxlamb 5y ago
    My point is that real estate cannot be a good investment and affordable at the same time in the long run. In your example, if the affordable apartment stays affordable the next 20 years then it’s not a good investment. In many cities that small apartment was good investment because now even those small apartments are no longer affordable (i.e downtown Denver, downtown Austin).