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It is an amazing contrast with the situation when I was younger. House prices were bounded by wages and were understood to be depreciating assets. That is, wi

It is an amazing contrast with the situation when I was younger. House prices were bounded by wages and were understood to be depreciating assets. That is, without constant investment they lost their value and became unusable and difficult to trade. Even in the best of times it takes time, preparation, and fees to sell real estate. Landlording was a rich person's game because of the risk involved and if you really wanted to make money it was expected that any properties to be rented should be fully paid off because of the slim profits and high risk of damage to the property. The whole idea of fearing loss of value was completely different: Nowadays houses are bidding chips and people want to make the numbers go up to feel rich. In the past sharp losses of value meant the area was no longer desirable so that people were not moving in and so wages would no longer support prices in that area. Either things were modest and relatively stable or unstable and sinking. The current attitude toward housing is based on the recent explosion of house prices which is driven by financialization, extremely low interest rates, and demand outpacing supply where there are jobs. Economic, political, and demographic changes are very likely to wipe all of that out in a relatively short period.

endisneigh 4y ago
What area are you referring to where housing was understood to be a depreciating asset? Though that’s true in the literal sense, there are only a handful of instances in American history where they was empirically the case. Not to mention you don’t specify a locale which is the most important thing in real estate, heck, these days perhaps a neighborhood.
- smt88 4y ago
  In much of the North and Rust Belt of the US, houses declined in real dollars between the heydey of the mid-20th century and now. Detroit is a good example.
  - hiptobecubic 4y ago
    Ok but didn't Detroit like... collapse? Not every city is an economic monoculture of an industry that was offshored.
    - smt88 4y ago
      A lot of smaller cities are close enough to monocultures. If Disney pulled out of Orlando, for example, the housing market would implode. Even if only 10% of the jobs are taken by a single company or industry, losing that is sufficient to stop price growth.
  - ekianjo 4y ago
    bad example because Detroit became a shithole with no job opportunities. of course housing goes down if the area around it becomes a living hell.
- m0llusk 4y ago
  I am referring to the United States. In my youth I traveled a great deal, especially around the Midwest and Boston-Washington DC corridor and nearby countryside, much of which has since been developed. If you do a search for long term housing price data you will see that until the burst of inflation in the mid 1970s house prices were mostly flat. There was still inflation and wear, but the prices remained about where they were. In this environment where house prices are flat and houses wear out the asset becomes known for its depreciation. The big thing about locales is their vulnerability. It really is the case that back then some undesirable people moving in to a community could start a cascade of people moving out. In that case prices went from flat to falling fast. If you really did pick a great locale then your reward was prices remaining flat.
  - endisneigh 4y ago
    What you’re saying isn’t true though. https://fred.stlouisfed.org/series/MSPUS https://fred.stlouisfed.org/series/MSPUS Not to mention you can collect or save on rent which also goes up with inflation
    - dreamdeath 4y ago
      The graph you’ve linked doesn’t really include the bit they were talking about (namely all the time before the 70s). Like there’s a bit at the very beginning but hey it’s kinda flat.
- epistasis 4y ago
  I think we need to start thinking more clearly about real estate as a combination of two things: structure (depreciating) and land. Land behaves very different from other assets, because there is a finite amount of it, and it generates economic rent. And the increase in land value generally comes actions not of the owner, but of others, and of the government deciding what is allowed on the land (which happens at the local level, where a small cabal of landowners can exert great influence over a small number of officials making decisions). And unlike speculation on, say, lumber futures, speculation on land by buying it and hoarding it is actually a huge economic damper. Real estate speculation, by holding a property underdeveloped until it can be sold for maximum profit, creates a land bubble because it withholds productive use of that finite resource that everybody is trying to get. The best way to solve this would be to, IMHO, tax away all the economic rents that land generates. This removes the speculation, and ensures that every piece of property that is being underutilized will get transferred to someone who can better use it. This will keep housing prices down, because more houses will be built in high demand areas. It's a tax that would greatly improve economic efficiency, housing affordability, and our overall productivity. (It does need to be paired with zoning reform, though). We also need to reinvigorate our construction sector's productivity, and reduce the shocks to it from the boom bust cycle, but that takes different policy.
qeternity 4y ago
> The current attitude toward housing is based on the recent explosion of house prices which is driven by financialization, extremely low interest rates, and demand outpacing supply where there are jobs. These are the mechanisms by which the housing market has been driven to absurdity. But that reason why were here is that politicians and by extension the electorate on whose behalf they govern, decided to turn housing into a retirement plan. We then created enormous government programs to encourage people to partake in this scheme, which only robbed the future to pay the present. And now that many families have substantial wealth tied up in housing, it will be nearly impossible to voluntarily undo this mess.
- nwatson 4y ago
  And a big swath of the US population were barred from participating in those programs and so didn't get the benefit of relative inflation.
  - BrianOnHN 4y ago
    What programs?
    - m0llusk 4y ago
      Federal Housing Administration backed loans and the mortgage interest tax deduction worked together to give a big boost to a very specific demographic slice of the population.
      - pibechorro 4y ago
        This is why we aught to never have subcidies or bailouts.
        ceejayoz 4y ago
        Perhaps, but at this point that means pulling the rope ladder up behind you so no one else can use it.
chrisseaton 4y ago
> House prices were bounded by wages and were understood to be depreciating assets. When was this ever true? If you literally abandoned a house and let it rot then yeah maybe in ten years it will have lost value because it will need a lot of work, but other than that I think it's never been the case they're depreciating in any meaningful sense.
- jlbbellefeuille 4y ago
  Detroit would like a word with you… https://tinyurl.com/Detroit-2009-to-2019 https://tinyurl.com/Detroit-2009-to-2019
  - chrisseaton 4y ago
    That’s not a case of normal depreciation - I’m not sure people understand what the word means due to the responses here. You don’t say that your oil painting has depreciated because it was damaged in a house fire. Property in Detroit has been ‘damaged’ by social decline.
- blululu 4y ago
  Pretty much every capital asset depreciates. Even with basic maintenance everything wears out over time. Only legal entities are immune from the ravages of time.
  - chrisseaton 4y ago
    > Even with basic maintenance everything wears out over time. There's basic ongoing maintenance yeah, but I don't think that counts as deprecation in any sensible way does it? If you keep your oil paintings in a mouldy cupboard they'll rot, but we don't say art is a deprecating asset because of this. You just make sure they don't rot and clean them every now and again. Houses can stand for hundreds and hundreds of years. As they get older they get more valuable because people like older buildings for aesthetic reasons.
    - 4y ago
mrjin 4y ago
There was one obvious reason: too much money was printed, for decades. Virtually unlimited supply of cheap money not only push up asset prices but also make it super easy to blindly take loans to invest in assets and make tones of money. Once you tasted the easy money, you want more and earn from hard working would look super stupid. Properties are the most accessible way of getting involved, so people flock in. It's not only America, it's virtually everywhere. Look around the globe, for how long have all central banks been doing nothing but printing money? Printing money to economy just like adrenaline injection to body, it for sure helps in some scenarios but it also kills if you don't know when to stop. All the central banks delayed the crisis by printing money and got away by manipulating the data to make CPI looking low. It would be probably okay if they did that only one time or two. So here we are.
- nemo44x 4y ago
  Falling interest rates for 40 years wasn’t the problem. If anything there has been less demand for money which is why rates fall. Things are far less capital intensive than they used to be in many cases. Falling interest rates have been great for people as more people own homes than at any other point in history. But printing trillions more last year was a flaw. At least got physical proof that MMT doesn’t work.
  - epistasis 4y ago
    MMT is the idea that inflation is the result of government spending, rather than "bankruptcy" or people being unwilling to buy US government bonds. And in particular that limited productive capacity will cause inflation. So if anything the past years show that MMT was exactly right all along.
    - nemo44x 4y ago
      Nah just look at Sri Lanka. Another exhibit of MMT and how it destroys economies.
      - epistasis 4y ago
nemo44x 4y ago
In many locales the house is the least valuable thing on the property. When you buy real estate you’re buying a location above all else. As the population has grown and high paying jobs have increasingly consolidated into fewer urban areas, the demand for real estate in those locations has increased. So it’s the land and location you’re investing in which is certainly not a depreciating asset. Where I live it’s an old town that doesn’t have anymore room to build and way more people want to live here than there could ever be homes. So prices continue their rise even if you invest very little in the home. Saying that, you’re right that owning a house means taking care of it which costs money.
gonzo41 4y ago
It's a massive failure of neoliberal economics that this has occurred. Mortgage prices, along with the cost of electricity are two massive handbrakes on economic growth and potential productivity. Yet somehow the banks and power companies have captured the public to make people think that paying a million dollars to the bank is a great way to live. It's just crazy.
- ryan93 4y ago
  You have to get government approval to build. What are you talking about?
  - gonzo41 4y ago
    The government should have disincentivized using houses as an investment vehicle. Houses are for families to live in. The primary asset houses should provide are the family and the work they do, not the house. But if a house costs so much money that the family can't really take risks, then the house just becomes a debt prison.
    - hackerfromthefu 4y ago
      Prior to housing being investment vehicles and superannuation/401k .. most people had no money in old age.
    - s1artibartfast 4y ago
      However, you can't ignore the fact that homes have real tangible value and limited supply. As long as this is true, they will be a store of value.
      - aaaaaaaaata 4y ago
        > limited supply You can build 8-15 new houses in about a month for what it costs for one outside of LA.
        4y ago
epistasis 4y ago
> House prices were bounded by wages and were understood to be depreciating assets The first part is still true. The thing is that it's bounded by a smaller and smaller percentage wages, and it's always the highest wages that determine this. Housing prices being bound by seller capacity to pay means that there are not enough houses. If housing prices were determined by the cost of the houses, then we would have finally reached the point where there is adequate supply b
inglor_cz 4y ago
I sort-of agree and sort-of no. These are my objections: First of all, we should separate the value of the house from the value of the land, which is determined by its location. In my country, brand new houses in Ostrava (a rust belt city where I was born) cost about half as much as brand new houses around Prague (the capital), even though they are of the same size, on same sized lots, built from the very same materials by the very same Ukrainian gastarbeiters according to the very same technical standards etc. This isn't just pure gamble, but reflection of the fact that Ostrava isn't particularly attractive for employment even for the natives, while Prague is a major hub attracting professionals from the entire Slavic half of Europe and even some Westerners. An order of magnitude, if not more, people want to move to Prague than to Ostrava. This must have an effect on the land value. Second, the quality of the house matters. A wooden Japanese-style house depreciates quite fast. A modern brick house built to strict specs will outlast you and your kids, so the material depreciation is much slower. It might even be slower than pure inflation.
- Frost1x 4y ago
  >First of all, we should separate the value of the house from the value of the land, which is determined by its location. I'd say this is fairly true in the US. When you compare houses and the amount of similar quality property of say San Francisco or Austin to rural parts of say... Texas or Wyoming, you're going to find that at the same price point (a reflection of market value estimation), you get a lot more in Wyoming or rural Texas in terms of land and the quality of house than in the metropolitan areas described. When you compare metropolitan areas, housing and property is often significantly more expensive in areas where there is more opportunity for the working class or even businesses.
usrn 4y ago
It's all distorted by credit which heavily discourages building new housing. If I don't get a house this year I'm giving up on using real estate and moving onto my boat. I wish more people would do things like this.
jmyeet 4y ago
This really is a situation that's almost too big to fail. Let me explain. First, since so many voters are invested in the housing market, it's almost political suicide to do anything about it now. Protection and even increasing property prices has become an explicit political goal on every level. Second, as you see more and more corporations enter this market and become stakeholders, this trend is only strengthened as corporations are the true constituents. And no it doesn't matter which party is in power. The corporations have bought both of them. I'd say the biggest difference between now and 30+ years ago is the level of disposable income people have such that second homes, vacation homes and bigger homes have become way more common.
- tmnvix 4y ago
  I would argue that second homes, vacation homes and bigger homes have become way more common because in the past these things cost money, whereas now they make money (i.e. large capital gains). I think we are possibly entering a phase where a vacation home is again going to be a costly luxury and not an 'investment'.

endisneigh 4y ago

What area are you referring to where housing was understood to be a depreciating asset? Though that’s true in the literal sense, there are only a handful of instances in American history where they was empirically the case. Not to mention you don’t specify a locale which is the most important thing in real estate, heck, these days perhaps a neighborhood.

smt88 4y ago
In much of the North and Rust Belt of the US, houses declined in real dollars between the heydey of the mid-20th century and now. Detroit is a good example.
- hiptobecubic 4y ago
  Ok but didn't Detroit like... collapse? Not every city is an economic monoculture of an industry that was offshored.
  - smt88 4y ago
    A lot of smaller cities are close enough to monocultures. If Disney pulled out of Orlando, for example, the housing market would implode. Even if only 10% of the jobs are taken by a single company or industry, losing that is sufficient to stop price growth.
- ekianjo 4y ago
  bad example because Detroit became a shithole with no job opportunities. of course housing goes down if the area around it becomes a living hell.
m0llusk 4y ago
I am referring to the United States. In my youth I traveled a great deal, especially around the Midwest and Boston-Washington DC corridor and nearby countryside, much of which has since been developed. If you do a search for long term housing price data you will see that until the burst of inflation in the mid 1970s house prices were mostly flat. There was still inflation and wear, but the prices remained about where they were. In this environment where house prices are flat and houses wear out the asset becomes known for its depreciation. The big thing about locales is their vulnerability. It really is the case that back then some undesirable people moving in to a community could start a cascade of people moving out. In that case prices went from flat to falling fast. If you really did pick a great locale then your reward was prices remaining flat.
- endisneigh 4y ago
  What you’re saying isn’t true though. https://fred.stlouisfed.org/series/MSPUS https://fred.stlouisfed.org/series/MSPUS Not to mention you can collect or save on rent which also goes up with inflation
  - dreamdeath 4y ago
    The graph you’ve linked doesn’t really include the bit they were talking about (namely all the time before the 70s). Like there’s a bit at the very beginning but hey it’s kinda flat.
epistasis 4y ago
I think we need to start thinking more clearly about real estate as a combination of two things: structure (depreciating) and land. Land behaves very different from other assets, because there is a finite amount of it, and it generates economic rent. And the increase in land value generally comes actions not of the owner, but of others, and of the government deciding what is allowed on the land (which happens at the local level, where a small cabal of landowners can exert great influence over a small number of officials making decisions). And unlike speculation on, say, lumber futures, speculation on land by buying it and hoarding it is actually a huge economic damper. Real estate speculation, by holding a property underdeveloped until it can be sold for maximum profit, creates a land bubble because it withholds productive use of that finite resource that everybody is trying to get. The best way to solve this would be to, IMHO, tax away all the economic rents that land generates. This removes the speculation, and ensures that every piece of property that is being underutilized will get transferred to someone who can better use it. This will keep housing prices down, because more houses will be built in high demand areas. It's a tax that would greatly improve economic efficiency, housing affordability, and our overall productivity. (It does need to be paired with zoning reform, though). We also need to reinvigorate our construction sector's productivity, and reduce the shocks to it from the boom bust cycle, but that takes different policy.

qeternity 4y ago

> The current attitude toward housing is based on the recent explosion of house prices which is driven by financialization, extremely low interest rates, and demand outpacing supply where there are jobs. These are the mechanisms by which the housing market has been driven to absurdity. But that reason why were here is that politicians and by extension the electorate on whose behalf they govern, decided to turn housing into a retirement plan. We then created enormous government programs to encourage people to partake in this scheme, which only robbed the future to pay the present. And now that many families have substantial wealth tied up in housing, it will be nearly impossible to voluntarily undo this mess.

nwatson 4y ago
And a big swath of the US population were barred from participating in those programs and so didn't get the benefit of relative inflation.
- BrianOnHN 4y ago
  What programs?
  - m0llusk 4y ago
    Federal Housing Administration backed loans and the mortgage interest tax deduction worked together to give a big boost to a very specific demographic slice of the population.
    - pibechorro 4y ago
      This is why we aught to never have subcidies or bailouts.
      - ceejayoz 4y ago
        Perhaps, but at this point that means pulling the rope ladder up behind you so no one else can use it.

chrisseaton 4y ago

> House prices were bounded by wages and were understood to be depreciating assets. When was this ever true? If you literally abandoned a house and let it rot then yeah maybe in ten years it will have lost value because it will need a lot of work, but other than that I think it's never been the case they're depreciating in any meaningful sense.

jlbbellefeuille 4y ago
Detroit would like a word with you… https://tinyurl.com/Detroit-2009-to-2019 https://tinyurl.com/Detroit-2009-to-2019
- chrisseaton 4y ago
  That’s not a case of normal depreciation - I’m not sure people understand what the word means due to the responses here. You don’t say that your oil painting has depreciated because it was damaged in a house fire. Property in Detroit has been ‘damaged’ by social decline.
blululu 4y ago
Pretty much every capital asset depreciates. Even with basic maintenance everything wears out over time. Only legal entities are immune from the ravages of time.
- chrisseaton 4y ago
  > Even with basic maintenance everything wears out over time. There's basic ongoing maintenance yeah, but I don't think that counts as deprecation in any sensible way does it? If you keep your oil paintings in a mouldy cupboard they'll rot, but we don't say art is a deprecating asset because of this. You just make sure they don't rot and clean them every now and again. Houses can stand for hundreds and hundreds of years. As they get older they get more valuable because people like older buildings for aesthetic reasons.
  - 4y ago

mrjin 4y ago

There was one obvious reason: too much money was printed, for decades. Virtually unlimited supply of cheap money not only push up asset prices but also make it super easy to blindly take loans to invest in assets and make tones of money. Once you tasted the easy money, you want more and earn from hard working would look super stupid. Properties are the most accessible way of getting involved, so people flock in. It's not only America, it's virtually everywhere. Look around the globe, for how long have all central banks been doing nothing but printing money? Printing money to economy just like adrenaline injection to body, it for sure helps in some scenarios but it also kills if you don't know when to stop. All the central banks delayed the crisis by printing money and got away by manipulating the data to make CPI looking low. It would be probably okay if they did that only one time or two. So here we are.

nemo44x 4y ago
Falling interest rates for 40 years wasn’t the problem. If anything there has been less demand for money which is why rates fall. Things are far less capital intensive than they used to be in many cases. Falling interest rates have been great for people as more people own homes than at any other point in history. But printing trillions more last year was a flaw. At least got physical proof that MMT doesn’t work.
- epistasis 4y ago
  MMT is the idea that inflation is the result of government spending, rather than "bankruptcy" or people being unwilling to buy US government bonds. And in particular that limited productive capacity will cause inflation. So if anything the past years show that MMT was exactly right all along.
  - nemo44x 4y ago
    Nah just look at Sri Lanka. Another exhibit of MMT and how it destroys economies.
    - epistasis 4y ago

nemo44x 4y ago

In many locales the house is the least valuable thing on the property. When you buy real estate you’re buying a location above all else. As the population has grown and high paying jobs have increasingly consolidated into fewer urban areas, the demand for real estate in those locations has increased. So it’s the land and location you’re investing in which is certainly not a depreciating asset. Where I live it’s an old town that doesn’t have anymore room to build and way more people want to live here than there could ever be homes. So prices continue their rise even if you invest very little in the home. Saying that, you’re right that owning a house means taking care of it which costs money.

gonzo41 4y ago

It's a massive failure of neoliberal economics that this has occurred. Mortgage prices, along with the cost of electricity are two massive handbrakes on economic growth and potential productivity. Yet somehow the banks and power companies have captured the public to make people think that paying a million dollars to the bank is a great way to live. It's just crazy.

ryan93 4y ago
You have to get government approval to build. What are you talking about?
- gonzo41 4y ago
  The government should have disincentivized using houses as an investment vehicle. Houses are for families to live in. The primary asset houses should provide are the family and the work they do, not the house. But if a house costs so much money that the family can't really take risks, then the house just becomes a debt prison.
  - hackerfromthefu 4y ago
    Prior to housing being investment vehicles and superannuation/401k .. most people had no money in old age.
  - s1artibartfast 4y ago
    However, you can't ignore the fact that homes have real tangible value and limited supply. As long as this is true, they will be a store of value.
    - aaaaaaaaata 4y ago
      > limited supply You can build 8-15 new houses in about a month for what it costs for one outside of LA.
      - 4y ago

epistasis 4y ago

> House prices were bounded by wages and were understood to be depreciating assets The first part is still true. The thing is that it's bounded by a smaller and smaller percentage wages, and it's always the highest wages that determine this. Housing prices being bound by seller capacity to pay means that there are not enough houses. If housing prices were determined by the cost of the houses, then we would have finally reached the point where there is adequate supply b

inglor_cz 4y ago

I sort-of agree and sort-of no. These are my objections: First of all, we should separate the value of the house from the value of the land, which is determined by its location. In my country, brand new houses in Ostrava (a rust belt city where I was born) cost about half as much as brand new houses around Prague (the capital), even though they are of the same size, on same sized lots, built from the very same materials by the very same Ukrainian gastarbeiters according to the very same technical standards etc. This isn't just pure gamble, but reflection of the fact that Ostrava isn't particularly attractive for employment even for the natives, while Prague is a major hub attracting professionals from the entire Slavic half of Europe and even some Westerners. An order of magnitude, if not more, people want to move to Prague than to Ostrava. This must have an effect on the land value. Second, the quality of the house matters. A wooden Japanese-style house depreciates quite fast. A modern brick house built to strict specs will outlast you and your kids, so the material depreciation is much slower. It might even be slower than pure inflation.

Frost1x 4y ago
>First of all, we should separate the value of the house from the value of the land, which is determined by its location. I'd say this is fairly true in the US. When you compare houses and the amount of similar quality property of say San Francisco or Austin to rural parts of say... Texas or Wyoming, you're going to find that at the same price point (a reflection of market value estimation), you get a lot more in Wyoming or rural Texas in terms of land and the quality of house than in the metropolitan areas described. When you compare metropolitan areas, housing and property is often significantly more expensive in areas where there is more opportunity for the working class or even businesses.

usrn 4y ago

It's all distorted by credit which heavily discourages building new housing. If I don't get a house this year I'm giving up on using real estate and moving onto my boat. I wish more people would do things like this.

jmyeet 4y ago

This really is a situation that's almost too big to fail. Let me explain. First, since so many voters are invested in the housing market, it's almost political suicide to do anything about it now. Protection and even increasing property prices has become an explicit political goal on every level. Second, as you see more and more corporations enter this market and become stakeholders, this trend is only strengthened as corporations are the true constituents. And no it doesn't matter which party is in power. The corporations have bought both of them. I'd say the biggest difference between now and 30+ years ago is the level of disposable income people have such that second homes, vacation homes and bigger homes have become way more common.

tmnvix 4y ago
I would argue that second homes, vacation homes and bigger homes have become way more common because in the past these things cost money, whereas now they make money (i.e. large capital gains). I think we are possibly entering a phase where a vacation home is again going to be a costly luxury and not an 'investment'.