To be clear, I understand what inflation is, but something that’s only keeping up with inflation doesn’t make sense to me as an *investment.* I can understand increasing value by actively doing something, like fixing the roof or adding an addition, but not by it just sitting there.
In: 1365
[Baumol’s Cost Disease](https://en.wikipedia.org/wiki/Baumol_effect). Simply put, when everything else gets cheaper, the few things which **DON’T** get cheaper rise in price to absorb a greater share of everyone’s disposable income. You see this effect most strongly expressed in goods and services with inelastic demand, which are resistant to technological innovations which would make them less expensive: Housing, Health Care, and Education.
They don’t always. Only in metro areas that experience population growth faster than what construction can keep up with.
In metro areas that are seeing population declines, you’ll see home prices go down. And in metros where construction keeps up with population growth like Houston or Tokyo, home prices tend to stay flat.
Everyone’s commenting on land being limited in areas that have seen large population growth, with little supply growth to match. That’s true, but people are missing the other aspect – building densely is prohibited in many of these areas so the supply can’t meet the demand.
See denver and San Francisco for great examples – both have seen large population increases over the past few decades, largely from high income earners who can afford to pay a premium for less housing. Both have zoning codes that guarantee that medium and high density housing is practically illegal to build.
Supply and demand. Governments in the west are importing more and more immigrants and not increasing the housing supply to keep pace with it. This causes upward pressure on houses.
Added to that, price increases are greatest in desirable areas for the same reason. People want to move there so houses in the area become more expensive: supply and demand.
Housing prices don’t always increase over time. It depends on many factors including population growth, the structure and health of the financial industry and the general economy, zoning and building restrictions, government policies regarding land use and sale, and cultural attitudes toward home ownership, home size, and acceptable debt levels
During my PhD research I found reference to a study that showed that, over long periods of time, housing prices are actually stable and match inflation.
Housing isn’t really an inflation issue… its a supply and demand issue… there are more people today then there were yesterday…
Not only are there more people, but every year regulations for building new homes get tougher, and NIMBY groups add more and more red tape and hoops for builders to jump through meaning fewer homes get built, and those that do can cost a fortune just to break ground.
Even assuming you break ground every year there are fewer and fewer qualified and quality trained skilled trades people to do the jobs leading to plenty of delays on the job site, and with near year round wild fires, lumber prices are at al all time high. This means getting into the construction game is more and more expensive and thus riskier every year and so fewer homes get built.
All of that means less and less supply entering the market for a growing population.
Add to that factors like Air B&B and the investment property boom taking single family homes off the market and turning them into hotel rooms, or multi-unit rentals means you have a lot of competition for an increasingly small number of properties.
On top of all of these factors, Housing is a necessity, there will always be a huge demand, you often can’t just “find a cheaper place to live”, without being willing to undergo significant hardship elsewhere, whether that means living in a sketchy area of town, being willing to commute for hours a day and/or living like sardines… so its a sellers market, and with the systems we have created, almost always will be.
It’s supply and demand.
Because old people are in power in almost all Western countries, and managed to limit house building. The exact way they did it varies from country to country, but old people want houses as expensive as possible, because this way they can leech money from younger generations.
It is purely a generational conflict.
In some places there’s additional factors like high immigration, but it wouldn’t matter if people were allowed to build on their land.
In some countries (such as Japan) a home can be a depreciating asset.
https://www.theguardian.com/cities/2017/nov/16/japan-reusable-housing-revolution
Land value, street/city value, and less available houses. If you want to be as over-simplistic as possible, from my understanding at-least.
It’s pretty arbitrary though, and you could definitely argue some houses are worth less or more than others. There’s like a trillion more factors as well, age of the house, size of the land it comes with, if it’s in a vacation city, etc…
But right now at-least, housing is **definitely not** tied to inflation. It’s tied to the huge group(s) of landlords and billionaires who own way too much of it. And they’ve been artificially driving the price up for years and years now. Not to mention the sheer magnitude of cities that only have single-family zoning laws all across the country, or just make it straight up illegal to build anything besides; ‘average american house’.
There’s tons of empty houses that no average person could hope to afford, and just sit empty. And they make up the money lost by just having a few desperate/foolish folks rent it out, or pay a big mortgage monthly for it. It’s becoming a huge problem, especially for the younger generation; though it’s effecting everyone really.
If you’re curious where/how I know this from, I’ll give a link to a video you can watch/listen to in the background that talks about why houses cost too much.
[https://www.youtube.com/watch?v=UDnFSlzMlGI&t=737s&ab_channel=SomeMoreNews](https://www.youtube.com/watch?v=UDnFSlzMlGI&t=737s&ab_channel=SomeMoreNews)
Something I don’t think other people have mentioned:
Established house prices increase because it costs more and more each year to build new houses.
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