Why does the value of land/real estate increase over time? Other commodities deflate or are unstable, what makes land a good investment most of the time?
In: Economics
Land does decrease in value, often because of real or perceived changes in future desirability of property. The closing of a mall or an anticipated development not occurring, or a flood bring into people’s mind that property is flood prone, comes to mind. However, real estate is normally considered to be a good investment because it’s value fluctuates differently from the other major investments: stocks and bonds.
I think u/Kngfalcon nailed it in a very succinct fashion, but I would love to add the fact that is where *real* estate comes from; it is a “fixed” and true thing that can be passed over generations; the value of nearly all other things degrades over time, but unimproved land doesn’t really get made worse by being left alone, and while any infrastructure/improvements generally cost upkeep, they provide greater value than they cost to keep (or else they’re a poor investment, and should be removed)
Keep rarity in the equation as well. For houses, flats … it is “location location location” one of the main factor.
Also because inflation ; after time pass there’s more money in the world, so price raises.
Think of it has in a videogames ; the game create money from nothing when doing quest, so at a moment you have lots of money, but nothing much interesting to buy, so the devs add expensive things to the game for you to buy. You have lots of money, but interesting things cost way more than before.
Bubbles-aside, this is largely due to the fact that the value of $1 decreases over time. Factor in the basic law of supply and demand and things can go wonky really fast. Look at some parts of the nation during the last housing crash. Particularly Detroit. Other parts of the nation exploded in value. This side of the equation looks at if the property is where people want to be. If they don’t, it won’t increase in value any more than the standard percentage of inflation, and it may actually lose value.
Generally though, things that are not being made anymore (that lots of people want) are stable investments. Precious metals and land being two of the top investments.
All land is not a good investment. Land in desirable places is a good investment. It increases in value because lots of people want to buy it.
So, just make sure you have a crystal ball handy when you’re picking a parcel.
Because the amount of land on earth remains fairly stable while the world population is increasing. More people need more land
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