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Homes should be depreciating assets, like in Japan, and like every other item. Furniture depreciates (with few exceptions, like antiques). Clothes, motor vehicl

Homes should be depreciating assets, like in Japan, and like every other item. Furniture depreciates (with few exceptions, like antiques). Clothes, motor vehicles, electronics, carpets, gym equipment, lawn mowers: name it. With rare exceptions, everything depreciates over time. That's how it should be. But what about mortgages ending up underwater? Well, that's life. And if home prices were low enough, it wouldn't be a concern. I don't expect to turn a profit on the above items. I buy them for their intrinsic utility, not as a speculative instrument, an investment vehicle, or a way to finance my future retirement. So should it be with housing. If you want to save for retirement, open a 401K, a Roth IRA, and a non registered account. Small time landlords are okay. There is a market need for rental units. But corporate landlords need to be broken up.

jleyank 4y ago
The land under the house doesn’t depreciate like the house does. Can always put a new house up. Hard to get new land, so unless regional demand goes down it’s a value-growth proposition.
- robertlagrant 4y ago
  Indeed. And the neighbourhood, the schools, the nearby jobs or leisure activities or woodland or whatever it is that makes that location valuable also don't change, or not as quickly. If they get better, does the house appreciate? Does it also appreciate if I paint my house? If so, why not let the market calculate that depreciation or appreciation? What's the point of second-order accounting when you can just expose the asset on a free market?
nemo44x 4y ago
This makes no sense. Property/land doesn't depreciate. The actual home structure does but you forget that homes aren't static assets. They are continuously being improved. In essence, from the day a house is built, it needs to be rebuilt piece by piece over time. This affects the price. Also you need to consider the lifetime of materials VS the inflated cost of new materials and labor to built an equivalent today.
mertd 4y ago
I agree but part of me is also starting to think that for many people having a big chunk of their wealth tied up to an illiquid asset is not a terrible thing because otherwise they would "invest" it in JPEGs.
endisneigh 4y ago
It's kind of annoying that people bring up Japan so often. Japan has had a history of catastrophic earthquakes that destroy everything. Necessarily they feel that physical structures should serve a more transient purpose. Regardless, the underlying land still appreciates, it's just that the structure isn't really that valuable. Even in the United States the structure depreciates. You can go to any county assessment site and see how the assessed value of a property (structure + land) changes over the years. What you'll notice is that the structure goes down a little, and land goes up a little. The main issue with United States, unlike Japan, is a culture of investing in real estate. As long as that's true nothing will change.
- 1970-01-01 4y ago
  >Even in the United States the land depreciates. It does not and is considered to have an unlimited useful life. Source: IRS.gov
  - endisneigh 4y ago
    yes you're correct. a typo, I meant structure.
- rr808 4y ago
  The other part of Japan is that in the 80s and 90s it had the highest, most unaffordable houses anywhere. Much of the reason they're cheap now is that that bubble exploded. Demographics are different to.
turdprincess 4y ago
(Small time landlord here) homes are absolutely depreciating assets. On your taxes you can write off the whole value of your home over 30 years due to depreciation - the assumption is that your home will only last your that long and will essentially be “rebuilt” through all the maintenance expenses. Your home is just a pile of scrap wood and nails which rots and depreciated just like your car. What does not depreciate however is that pesky patch of dirt under your home. That goes up and up in value because folks want to own a piece of this great blue ball and the value on that desire only goes up as population and standard of living increases.
- refurb 4y ago
  You can get a tax deduction for depreciation but it’s clawed-backed when you sell at market rate. If you take $100,000 depreciation and sell, the $100,000 is knocked off the basis when calculating capita gains.
- thrwy_918 4y ago
  > What does not depreciate however is that pesky patch of dirt under your home. That goes up and up in value because folks want to own a piece of this great blue ball and the value on that desire only goes up as population and standard of living increases. ...which is why a land value tax is a great idea https://en.wikipedia.org/wiki/Land_value_tax https://en.wikipedia.org/wiki/Land_value_tax
shjake 4y ago
They are, though? I mean houses built several decades ago are cheaper than new ones. It’s just that overall growth in prices more than completely offsets that. Anyway unlike all of those things you mentioned there are usually no objective reasons for homes to depreciate to zero (you’d need renovation prices to be higher than the cost for building a new house, which does in fact happen sometimes). Also houses are most often built on land which can’t be a depreciating asset and Japanese homebuyers have different preferences due to certain (possibly irrational reasons).
munificent 4y ago
Physical artifacts depreciate over time because of wear and tear. They lose value because the object itself is actually degrading. (Though even this isn't cut and dry because they also gain intangible properties like age and history which are meaningful and valuable to some.) Digital or conceptual artifacts are not subject to the effects of physics and entropy, so do not naturally decay. The text of Moby Dick today is the exact same as it was 100 years ago. A "home" is a combination of those: a physical building sitting on a legally enshrined plot of allocated land. The former depreciates while the latter naturally appreciates.

jleyank 4y ago

The land under the house doesn’t depreciate like the house does. Can always put a new house up. Hard to get new land, so unless regional demand goes down it’s a value-growth proposition.

robertlagrant 4y ago
Indeed. And the neighbourhood, the schools, the nearby jobs or leisure activities or woodland or whatever it is that makes that location valuable also don't change, or not as quickly. If they get better, does the house appreciate? Does it also appreciate if I paint my house? If so, why not let the market calculate that depreciation or appreciation? What's the point of second-order accounting when you can just expose the asset on a free market?

nemo44x 4y ago

This makes no sense. Property/land doesn't depreciate. The actual home structure does but you forget that homes aren't static assets. They are continuously being improved. In essence, from the day a house is built, it needs to be rebuilt piece by piece over time. This affects the price. Also you need to consider the lifetime of materials VS the inflated cost of new materials and labor to built an equivalent today.

mertd 4y ago

I agree but part of me is also starting to think that for many people having a big chunk of their wealth tied up to an illiquid asset is not a terrible thing because otherwise they would "invest" it in JPEGs.

endisneigh 4y ago

It's kind of annoying that people bring up Japan so often. Japan has had a history of catastrophic earthquakes that destroy everything. Necessarily they feel that physical structures should serve a more transient purpose. Regardless, the underlying land still appreciates, it's just that the structure isn't really that valuable. Even in the United States the structure depreciates. You can go to any county assessment site and see how the assessed value of a property (structure + land) changes over the years. What you'll notice is that the structure goes down a little, and land goes up a little. The main issue with United States, unlike Japan, is a culture of investing in real estate. As long as that's true nothing will change.

1970-01-01 4y ago
>Even in the United States the land depreciates. It does not and is considered to have an unlimited useful life. Source: IRS.gov
- endisneigh 4y ago
  yes you're correct. a typo, I meant structure.
rr808 4y ago
The other part of Japan is that in the 80s and 90s it had the highest, most unaffordable houses anywhere. Much of the reason they're cheap now is that that bubble exploded. Demographics are different to.

turdprincess 4y ago

(Small time landlord here) homes are absolutely depreciating assets. On your taxes you can write off the whole value of your home over 30 years due to depreciation - the assumption is that your home will only last your that long and will essentially be “rebuilt” through all the maintenance expenses. Your home is just a pile of scrap wood and nails which rots and depreciated just like your car. What does not depreciate however is that pesky patch of dirt under your home. That goes up and up in value because folks want to own a piece of this great blue ball and the value on that desire only goes up as population and standard of living increases.

refurb 4y ago
You can get a tax deduction for depreciation but it’s clawed-backed when you sell at market rate. If you take $100,000 depreciation and sell, the $100,000 is knocked off the basis when calculating capita gains.
thrwy_918 4y ago
> What does not depreciate however is that pesky patch of dirt under your home. That goes up and up in value because folks want to own a piece of this great blue ball and the value on that desire only goes up as population and standard of living increases. ...which is why a land value tax is a great idea https://en.wikipedia.org/wiki/Land_value_tax https://en.wikipedia.org/wiki/Land_value_tax

shjake 4y ago

They are, though? I mean houses built several decades ago are cheaper than new ones. It’s just that overall growth in prices more than completely offsets that. Anyway unlike all of those things you mentioned there are usually no objective reasons for homes to depreciate to zero (you’d need renovation prices to be higher than the cost for building a new house, which does in fact happen sometimes). Also houses are most often built on land which can’t be a depreciating asset and Japanese homebuyers have different preferences due to certain (possibly irrational reasons).

munificent 4y ago

Physical artifacts depreciate over time because of wear and tear. They lose value because the object itself is actually degrading. (Though even this isn't cut and dry because they also gain intangible properties like age and history which are meaningful and valuable to some.) Digital or conceptual artifacts are not subject to the effects of physics and entropy, so do not naturally decay. The text of Moby Dick today is the exact same as it was 100 years ago. A "home" is a combination of those: a physical building sitting on a legally enshrined plot of allocated land. The former depreciates while the latter naturally appreciates.