
Why Land and Homes Actually Tend to Be Disappointing Investments - zdrummond
http://www.nytimes.com/2016/07/17/upshot/why-land-may-not-be-the-smartest-place-to-put-your-nest-egg.html
======
HappyFunGuy
Land and Homes should not suck useful capital out of our economies. Where
could you spend more money and benefit less people per dollar? Our capital is
better deployed in businesses where many more people benefit from many less
dollar input.

This is why the SP500 craps on real estate. Because it should. Hell, the only
reason real estate has had the peaks it has, is because it was subsidized by
the financial sector. And as you can see, that blip of misvaluation did much
more harm than good.

Business make the world better than houses do. Businesses are where you get
people the best benefits. More expensive houses, to the point of unaffordable
are the enemy. If you have allocated a huge portion of your assets into a non
productive asset (a house), then you are part of what is wrong with the world.
Stop expecting your "only benefits you house" to pay the same as "benefits 10x
+ more people" businesses.

P.S. liquidity, capital surplus recycling, less bid/ask spread, less fees,
less counterparty risk (eviction, destruction). The capital markets pretty
much crap on the real estate markets. And they should.

~~~
mancerayder
This is just a massive overgeneralization about the viability of real estate
as an investment vehicle, and it comes off as slightly moralistic.

I'll leave out the moralistic component. When it comes to value, some other
considerations are the low interest rates we experience, the fixed 30-year
loan, in the U.S. that is, and interest tax deductions. So one isn't pummeling
1M in investment that could otherwise go into a business. One is putting in
200k, even less with an FHA loan, and deducting the price of the loan.

Now we get more advanced. Buy a multi-family property, and you get rental
income. This rental income is balanced against depreciation of the house, so
your personal income bracket isn't affected. When you combine the tax credits,
the low cost of loans, the increasing rents, the principal you're getting
back, when the dust has settled you're light years ahead of those folks who
rented and pumped their money into some seesaw investment vehicle like the
stock market.

I pay out of pocket less than the price of a studio, and own a standalone
house in one of the country's top three rental markets.

It gets better, because you can sell the property to purchase another, and
defer all tax payments on the profit of the sale. 1031 exchange.

As someone else said, it's pointless to generalize nationally. We live in a
big country, assuming you are US-based. I bet there's a similar dynamic in the
UK or Canada, both of which have noises of a bubble.

~~~
pm90
It fails to amaze me how much the govt. and financial sector are willing to
subsidise the housing market. If you leave the morality clause aside, why
exactly should the US Government create tax incentives, low interest mortgages
and such for housing? It was precisely the morality of enabling Americans to
own a house that these benefits are present in the first place, funneling so
much financial resources into the housing market rather than other
investments.

I do agree with what you say though. With all the incentives that are in
place, we shouldn't overgeneralize since housing can be a good investment.

~~~
refurb
What I find silly is, is the gov't really subsidizing housing in the end?

Offer a tax deduction on mortgage interest and people can afford a higher
price so competition drives prices up and everyone ends up in the same place.
Same with lower interest rates, etc.

One could argue there is a period where housing is easier to purchase once a
new subsidy is created, but shortly after that, the market reaches equilibrium
and we're back in the same place.

Just imagine if there were no housing subsidies. Housing prices would be mich
lower. And yes, I know that's a gross oversimplification, but I think the
effect is still there.

~~~
gumby
> What I find silly is, is the gov't really subsidizing housing in the end? >
> Offer a tax deduction on mortgage interest and people can afford a higher
> price so competition drives prices up and everyone ends up in the same
> place.

Exactly: it's a tax subsidy to sales agents (and others whose income depends
on the transaction price). Homeowners don't get anything out of it except that
their house has a larger $ on their list of assets. It doesn't help them buy a
better house (since everyone in the same income bracket can afford the same
house).

It's pitched as a middle class benefit though, so simplifying the system would
be greeted with howls of dismay.

It does screw those of us who pay cash for our houses BTW.

------
raintrees
You're doing it wrong? Cashflow? I am slowly making my way to independent
wealth BECAUSE of land/home investments. But it is because they are in
production of providing good homes to people (multi-family residential), not
farming (large part of the short article) nor waiting for the turf itself to
appreciate.

Even the investment in farmland is not taking the production of the business
into account. Wouldn't that be similar to investing in some servers, but
letting them sit and hoping they appreciate in value, rather than being
involved in what the servers are doing?

This article seems so at odds with land/home investment, I am wondering what
Schiller's real motivation is with it, or if it is taken out of context...

What am I missing?

~~~
refurb
A few thoughts:

\- Just because some gets you a positive return, doesn't mean it's an ideal
investment. If you can get a 6% return, then an investment getting you 3%
isn't that great.

\- Real estate is local. Schiller is looking at average across the entire
country. Areas appreciate at different rates. If you're lucky enough to buy in
an area where prices are rapidly appreciating, then it can be a great
investment. If you're buying at the top, then it can be a really bad
investment.

~~~
pbreit
"Schiller is looking at average across the entire country"

Which is silly because you'd never invest that way.

~~~
gizmo
The country as a whole -- by definition -- does get the average return. If you
get an above-average return on your land value then somebody else has to get a
below-average return, otherwise the average would be higher.

As an individual investor you probably don't care about other people's
returns, but an economic analysis has to look at the average case and not at
what lucky/sophisticated investors get.

~~~
pbreit
But lots of people don't see housing as an investment.

------
dimva
Counterpoint:

10-year REIT returns: 7.59% annually

10-year US stock market returns: 7.54% annually

Looks similar, except that remember: 2006 was the peak of the real estate
bubble. This would be like judging 10-year US stock returns by starting at the
year 2000 - it'd be negative.

Since its inception in 2004, VNQ has returned an annual return of 10.04%,
approximately 3% higher annual return than the stock market.

I don't think this should be the case - buying property and sitting on it
shouldn't give you a higher return than investing in the real economy. But,
with our anti-development government policies, this is what ends up happening.

Sources:
[https://personal.vanguard.com/us/funds/snapshot?FundIntExt=I...](https://personal.vanguard.com/us/funds/snapshot?FundIntExt=INT&FundId=0986)
[https://personal.vanguard.com/us/funds/snapshot?FundIntExt=I...](https://personal.vanguard.com/us/funds/snapshot?FundIntExt=INT&FundId=0970)

~~~
compumike
On one hand, note that holding REITs is pretty different than "buying property
and sitting on it"; these companies charge rents to real businesses &
apartment-dwellers. They will (on average) generate and distribute profits
from that activity even if the underlying property value remains completely
flat. I'm not sure how that's different from "investing in the real economy"
\-- the apartment-dwellers or office-dwellers are happy to hand some profits
over to the landlords in exchange for being able to be in a place with access
to good jobs/culture/etc, and for the flexibility of not being locked down to
that property.

On the flip side, there is a "financial economy" side to it too. They're
leveraged (as is an individual mortgaged homeowner). If property values do go
up, and if interest rates do fall, then yeah, the REITs are going to be extra
juiced -- this has happened over the time period you highlighted.

But not without risk, too. In 2007-2009, the maximum drawdown (peak to trough)
in VNQ was -73%; that's a lot worse than the -55% for VTI.

------
paulsutter
Land is valued according to the surrounding economic activity. Land on average
is not valuable (just look down the next time you're on an airplane).

Land in fast-growing cities goes up in value quickly. Land in dying cities
goes down in value. Investing in land (and any associated cash-producing
activities like buildings) is primarily a bet on the outlook for economic
activity in the surrounding area.

Long term farm prices is a poor proxy for real estate investing generally.

~~~
F_J_H
My thoughts exactly. If someone is looking to make decent returns with real
estate, farms and rural properties are not where they'd likely be focusing. I
live in Vancouver,Canada where real estate returns have been substantial. It
completely depends on market dynamics.

~~~
potatolicious
I'd argue that Vancouver is exactly the sort of place where OP's market
dynamics have broken down.

The real estate market in Vancouver no longer at all - even remotely -
represents the present or future expected economic activity in the surrounding
area.

One of the core issues with real estate is that _in an ideal state_ they are
priced to reflect their surrounding conditions, many (if not most) have had
their prices divorced from any foundational economic growth expectations. Real
estate becomes priced on a benchmark of other real estate, not underlying
industrial or commercial activity.

If Vancouver's real estate pricing reflected the surrounding economy there
should be much cause for celebration - per capita income should be rising by
several hundred percent, and the city's economy would be growing by double-
digit percentages annually for some time to come!

~~~
F_J_H
Yes, that is true - the prices make no sense from a local perspective.
However, I heard a keynote by an economist/urban planner, who suggested
Vancouver needs to be considered within a global context rather than a local
one since it is a very desirable city internationally, and draws buyers from
all over the world.

------
patall
I honestly do not get it. How can you make any assumptions about an investment
when you only consider prices then and now? I mean, this land has produced
goods for a hundered years, why aren't those counted to the three times the
investment itself has increased in price . This is true for other inverstments
too, but still you have to include that in your calculation. An oil field is
even worth less after you have extracted the oil, still it might have been a
good investment.

~~~
tuna-piano
This just in: Bonds are terrible investments. 30 year coupon-only bond has not
increased in value in 30 years*

*Not including the coupon payments

~~~
MagnumOpus
I get your point, but a pedantic remark:

The price of 30 year coupon-only bonds have increased by 30%+ in the last
three years alone, because a constant coupon stream becomes more valuable if
interest rates are lower. (The parallel to a rental real-estate investment is
obvious.)

~~~
tuna-piano
I understand that point, but a real question. If you buy a 30 year coupon
paying bond at $1 with a 5% yearly payment, won't it be a $1 bond in $30
years, regardless of whether it is $1.05 at year 28?

------
mandelken
This article misses one crucial point: leverage. People can afford to buy a
property many times their current savings with a mortgage based on their
income, because the government in effect guaranties the credit risk in the US
or subsidies it in other countries. For most citizens this is the only way to
obtain wealth. If you are already wealthy then, yes, land might not be your
best investment choice, but chances are you aren't (see Piketty).

~~~
rdmcfee
But you pay interest on your leverage. So if your asset isn't appreciating
faster than inflation + your interest rate then I don't think you're actually
realizing any gains.

~~~
legulere
You need to subtract the rent you're saving from the interest and also need to
take into account if you can deduct the interest from your taxes [1]. If that
interest rate ends up lower than inflation, you're realizing gains.

[1]:
[https://en.wikipedia.org/wiki/Home_mortgage_interest_deducti...](https://en.wikipedia.org/wiki/Home_mortgage_interest_deduction)

~~~
kale
Even then, this assumes you'll have enough deductions to not take the standard
deduction. I did this analysis once. I took the cost of a rental I was
considering, figured out how much I claimed on long-form taxes. Then I re-
calculated using the standard deduction (loss of housing interest deduction
meant standard deduction was better for me). Then used the tax difference
spread out over 12 months to calculate the "true" cost of my mortgage. It
turns out the mortgage was quite a bit cheaper.

Even still, though, I am taking on a risk of not being able to sell the house
if I ever change jobs. It's appreciating rapidly right now, but everyone knows
this can change in months.

------
SilasX
Sorry, I've never been able to reconcile these claims. On the one hand, any
retirement-investment seminar is going to give the stat that real estate on
average has returned just a little above inflation.

OTOH, pretty much everyone's social group is full of people who bought a home
that has significantly appreciated in value if they've held it 20+ years (and
also saved them a ton in housing costs). What gives?

\- Is there a huge chunk of homes pulling down the average?

\- Is the home appreciation understating the return, after you account for
interest/maintenance/tax costs?

\- Is our recent experience dominated by anomalously large returns that aren't
likely to continue?

\- Is it an artifact of the calculation, which excludes relevant things like
the imputed rental income (and not having to pay current rates)?

Does this statistic really translate into "don't worry, you won't be priced
out of any booking metro area"?

~~~
tomarr
Leverage is the key. Someone could buy a $200k house for $20k of their own
money in the form of a deposit for a mortgage. Now say house prices go up 4% a
year (so probably less than S&P) for 5 years, while the mortgage interest is
1.5%. So they will have paid in approx $70k, and gained nearly $30k in asset
appreciation. That's a 40% return on your cash, and you've not had to pay any
rent!

~~~
refurb
Leverage also has the downside of magnifying loses. Put 10% down on a $500k
house. Market falls 10% and your return is -200%.

~~~
toomuchtodo
Walking away from a mortgage is significantly less painful than walking away
from a margin call (or, losing actual money versus borrowed money).

------
mabbo
Taxes complicate things.

In Canada at least, homes that you live in are not subject to capital gains
taxes. So if my home increases in value, it was a tax-free investment.

On top of this, I'm reducing my expenses. My rent used to go up every year,
following inflation. My mortgage is a fixed amount, and I pay a very stable
fixed amount of it every two weeks. Once inflation is factored in, I will pay
less and less over time to live where I do.

Extra money you earn is taxed. Extra money you save isn't. When taxes are
high, this factor is important.

Overall, I suspect I could make a bit more money investing and renting- but
not all that much more. I consider the difference a little fee I pay to never
have to deal with some shitty landlord again.

------
Overtonwindow
The title is slightly misleading. This is an article dominated by the
discussion of buying land, specifically farmland. I don't see a lot of
discussion about buying a home has a disappointing investment.

With that said, I disagree with the author because he's failed to examine the
long term security of buying land. Buying a parcel of land can pay off in ways
not completely obvious in the present tense. It can be used as collateral on
the purchase of a home. It can be used to build a future home on, or if all
else fails, pitch a tent and count your blessings.

~~~
JumpCrisscross
> _It can be used as collateral_

Registered securities can more readily be used as collateral on account of
their liquidity.

~~~
Overtonwindow
Fair point.

------
mark_l_watson
If I were still young, I probably would not invest much in real estate right
now, at least not until a major downturn in prices.

It used to be very different. A year after I graduated from college I bought
my first home in the mid 1970s, and it is still a good income-generating
rental property. Back then, most of my friends and I all had the same goal:
own our own home and one or two rental properties. Back then, this was a great
strategy.

If I were 25 right now, I would probably rent in a beautiful city, probably
not own a car, and seek other investments, and keep investing in my own
training/education.

------
bane
It's probably best to not think of buying property as an "investment" in the
same sense that buying other monetary instruments is. You must pay to live
somewhere, and by purchasing the property you live in, you do a more efficient
job of capturing and minimizing that expense. In _most_ places, the cost to
rent is within spitting distance of the average monthly mortgage.

All things being equal, buying parks some of your money until some point in
the future when you can recover it, instead of just giving it to somebody else
to park.

In general, since the population of the Earth is growing, and we're not adding
much more land to the planet (in fact, we may be doing the reverse), the
inventory of available land shrinks and property is likely to increase in
value at _at least_ the rate of inflation, but often slightly higher over
decades.

Not great if you think of it as investment, but far better than showing it as
a raw expense.

~~~
peckrob
When I bought my first home, my Dad gave me a good piece of advise: "Don't
look at it as an investment, look at it as a home."

What he meant was, you have to live somewhere NOW. If you make some money at
some undefined future point all the better, but right now you need a roof. But
even if you lose money selling it later, unless things really go to hell,
you'll probably lose less than you would have paid in rent over an equal
period of time.

And there's intangibles to owning a place that you can say is _yours_. I don't
have to worry about drunken parties above my head, or finding parking, or my
neighbor catching the building on fire trying to cook. If stuff breaks I can
fix it, not have to wait for maintenance to get there "sometime" (my last
apartment before I bought the house, the AC went out. In Alabama. In August.
It was 90 degrees inside for 4 days before maintenance finally got around to
fixing it).

------
applecore
What's disappointing about an investment that holds its value for over a
century, keeping pace with inflation, and you can live in it and bequeath to
your heirs without a forced sale?

------
paulpauper
Hmmm...let's see....Bay Area real estate has doubled since 2011, and has
outpaced the S&P 500, even going back 30 years. So I guess all those people
should feel like fools.

As they say, 'location location location' , which Shiller ignores, in favor of
the quote that fits his thesis, 'they can't make more land'.

So tired of the generalizations and lazy thinking that passes for journalism
these days, and even NYTs and Nobel Prize Winners are not immune

~~~
refurb
So your assumption is that the Bay area real estate prices will continue to go
up and could never go down?

Bay area prices don't invalidate what Schiller said. If you can time the
market then of course you can make a ton on real estate. Same thing with the
market.

Just because someone bought in a market where prices rapidly went up doesn't
make them an investing genius.

~~~
paulpauper
prices did go down in 2006-08, before rocketing higher in 2011-2015. There are
many factors that bode well for Silicon Valley real estate - scarcity, floods
of capital - both cognitive and financial -in the region.

~~~
refurb
So you're saying it's different this time?

------
TrysterosEmp
Wait, wouldn't a trend towards micro-apartments and higher density make urban
land more valuable? I suppose the trick is buying urban land in just the right
place if things get more dense.

~~~
3minus1
Fitting more units in the same space would drive up value, but a large
increase in available units would have the opposite affect.

------
tim333
The article is kind of dumb in that it ignores rental income. If the title was
"investments where you get no income tend to be disappointing" then he'd have
a point.

Real estate actually tends to be the best investment for most normal people.
It's fairly easy to understand and doesn't go bust like tech stocks. It keeps
up with inflation unlike bonds or bank accounts. You can borrow and leverage
up without margin calls unlike almost all other investments.

I've got a friend in London with a normal job who just bought a few flats for
like £90k mortgage, £10k down and the equity in them is now well over £1m. No
other regular investment performs like that with little risk.

~~~
rahimnathwani
"I've got a friend in London with a normal job who just bought a few flats for
like £90k mortgage, £10k down and the equity in them is now well over £1m. No
other regular investment performs like that with little risk."

From the numbers you quoted, I assume (s)he got started in 1999/2000? It
seemed less risky then, because:

1) Rental income on a 100k flat (~10k/year) would easily cover the interest
cost (5-7k/year, depending on the mortgage deal).

2) Although prices were already higher than historical prices, there was no
sign that they were becoming unaffordable. Many people in London earned >=30k
or had joint income of >=36k, so they could easily get a 90k mortgage.

3) Management fees on flats were low (less than 10% of the monthly rent).

Only (1) is still true today, but could reverse if interest rates go up a
little.

Today's buyers do not face the same environment your friend did.

~~~
tim333
I agree with that. I simplified a bit, I think the most recent purchase was
around 2007 for ~300 and would be wary of piling in today in London. If the
area you are in is reasonably priced and going up though the strategy will
still quite likely work.

------
ronnier
I guess it depends. I have two homes and I rent one out. It's almost paid off
and I get $2,550 a month in rent for it. For me it's worthwhile and if I do
this a few more times I could potentially be close to financially
independence.

~~~
akavi
The question is what the opportunity cost of your investment is.

How much money have you invested and how much time have you spent on the
rental property? What would your returns have been had you invested that money
and the money gained from using that time at some job in a stock portfolio
instead?

Now, it's possible, depending on where you are, that you got lucky and your
real estate investments outperformed the market. But that's not always going
to be the case, and it no more makes real estate a "good investment" than any
other undiversified portfolio.

~~~
09bjb
Most real estate investors would take issue with "getting lucky" as the main
factor in outperforming the market. Unlike knowing whether a stock in the
public markets is over- or under-valued, knowing how to increase the value of
your rental without breaking the bank doesn't require years of research,
insider knowledge, and fair fortune. Real estate will, for the foreseeable
future, provide market-beating yields to those that know how to use it and
aren't afraid of the extra work it takes to maintain and run (as compared to
holding a stock).

~~~
refurb
Lots of people say this same thing about bonds, stocks, gold. Maybe it's true,
but it's rare for anyone to have consistently high returns.

~~~
09bjb
No, savvy real estate investors with a lot of hard-won knowledge beat the
market and, more importantly, achieve their returns consistently in a variety
of economic climates. It's not based on luck but, like using a piece of
farmland optimally, requires knowledge of how to best leverage the asset.
Unlike traders/mutual fund managers/hedge funds, who have been shown time and
again to be charlatans, the regulars in real estate prove the naysayers wrong
year after year.

------
JumpCrisscross
Most Americans buy homes, not farmland. In that respect, the UK's "Safe as
Houses" is worth a read.

Summarising many studies on the matter, across countries and over long time
horizons, houses appreciate at the cost of inflation. Short-term swings are
primarily driven by credit; a bet on house prices rising is a leveraged bet on
credit quantity increasing, _i.e._ rates falling.

[1] [http://www.newyorker.com/magazine/2006/10/30/safe-as-
houses](http://www.newyorker.com/magazine/2006/10/30/safe-as-houses)

~~~
runT1ME
Are you unfamiliar with the concept of Leverage? Sure, having an investment
keep pace with inflation isn't phenomenal, but in the US it's standard to put
20% down of the house value. So if inflation is 3%, I can realize 15% on my
investment.

~~~
rdmcfee
Except your mortgage interest may also be 3% so you may realize nothing on
your investment.

Your interest costs will be proportional to your leverage so you need the
asset to outperform your interest rate to realize anything.

~~~
jly
Yes but this is a home, and not some generic investment.

I can either live in the home, saving livings costs (rent), or I can rent it
out and generate income, which will pay for the interest on the loan.

------
tacostakohashi
An excellent, and sobering article from Shiller.

It is rather unfortunate that such mythology and conventional wisdom around
real estate being a wonderful "investment" has built up, to the extent that
it's now challenging to have a sensible discussion with anybody on the topic.
Who knows how many young adults have been pressured into real estate by their
families, partners, and others, rather than following their passions in other
areas.

I've bought and sold a number of homes over the years, and I prefer owning to
renting, for practical reasons. Still, it's frustrating that everybody
encourages one to put much more money that is necessary into a home.

Right now, I live in a 50-year old property with an original bathroom and
flooring. In talking to architects, contractors, neighbors and the like,
nobody really seems to get the concept of renovating these items, bringing
them up to modern standards and catching up on deferred maintenance, as
opposed to overcapitalizing. The general assumption seems to be that this kind
of thing is an "investment", and therefore the more money spent, the better,
despite mounds of evidence to the contrary.

------
uslic001
Real estate has been my best investment sector to date. I bought 33 acres of
raw land in rural NC in 1997 and sold it 7 years later for twice what I paid
for it. I rolled that money over into another piece of land so the profits
would not be taxed and sold it in 2007 for twice what I paid for it. I was
heavily into REIT's for a time when I was getting 20% returns for 4 straight
years and sold before they tanked. Given all the crashes since 1997 in the
stock market my brokerage account has not done nearly as well as my real
estate investments. The problem is the right pieces of property are few and
far between so they are much harder to find. Timing of when to get into and
out of REIT's is also very tricky. I don't have the skills to be a landlord.
My personal house has not done nearly as well in regards to appreciation. My
business real estate has also not done nearly as well in appreciation. So over
all I find it best to be diversified in my investments. It is never good to
have too many eggs in one basket.

------
ianai
I think this makes the point that real estate is a stock investment. You buy
it today to turn it into rental income of some form. But the study did confine
itself to farmland. That portion of real estate has always been the slowest to
grow and for many reasons. There simply aren't as many people interested in
owning (the same tracts of) farmland as there are homeowners in a town/city.

------
mungoid
I can't speak for most people, but I was young and ignorant enough to get
talked into buying a home that I couldn't afford during the housing bubble. I
managed to make it 5 years before having to foreclose. It was a terrible money
pit and I'm in a much worse financial situation now than I was before I bought
the house.

Before i bought the house everyone talked about how great of an investment
homes were, but nobody talked about how expensive home ownership was and how
much deeper in debt you need to get in order to fix a house up.

The funny thing is that I could buy a house but couldn't get credit or loans
to fix the house up. Worst possible situation you can be in.

Even though the bank and realtor were liars and pushers, I don't blame anyone
but myself for falling for it. I hope you take this in mind before you buy
your first home

------
trjordan
Land and homes are the only leveraged asset available to the average American.
Even at only 1.1% per year, if you take out a mortgage and put 20% down, you
get 5.5% real return.

The S&P is something like 7%. It's not insanity if you can fund an investment
with close-to-inflation debt and 20% or less deposit.

~~~
w4
> _Land and homes are the only leveraged asset available to the average
> American._

Bingo. This is always what's missing from this conversation. Yes, it's true
that real estate is not a great investment when compared to other asset
classes. However, for your average American, it's one of the only asset
classes where leverage is readily available, which means it's one of the few
ways for average people to build real wealth.

And of course, I'd be remiss if I didn't also point out that leverage can
easily cut the other way as well (it can greatly magnify losses).

------
HappyFunGuy
Why should an industry that has existed for thousands of years have a high
premium?

Why would you want the houses of the world to cost more, so less people could
have them?

Low house prices and low land prices allow humans to actually use them. Stop
seeing what is good, as bad. Dirty capital class casuals.

~~~
EpicEng
I'm sure you'll think this way until you eventually grow up and buy some land
of your own. Then come back and tell us how much you appreciate a tanking real
estate market.

~~~
HappyFunGuy
I sure you'll think this way, until eventually you grow up and develop some
empathy of your own. Then come back and tell us how much you appreciate a
world where no man can afford to own his own home, and all homes are owned by
banks.

Disclaimer, I am a proud member of the capital class.

~~~
refurb
Home ownership in the US is over 60%. What should it be? 100%?

~~~
HappyFunGuy
Perhaps by "home ownership", you really mean "owned by the bank that holds
your mortgage" is at 60%?

~~~
refurb
Are you arguing that the only true form of home ownership is a fully paid off
home? That's a high bar.

------
trgn
Does anybody know here when people started to think of their home as an
"investment"? I mean, regular people, if that makes sense, ordinary families
and such.

I feel like it requires somewhat of an intellectual leap to see home ownership
as a form of investment.

~~~
allthetime
When people started getting rich off of their homes.

I grew up in Vancouver, BC and when you suddenly see a $500,000 home sell for
$2,000,000 a few years later, real estate starts to look like a pretty good
investment.

~~~
c-smile
But if you happened to have home in Richmond, BC, Canada that is in average
2-4 meters _below_ sea level ... surrounded by those toy-dykes ...

Just wait for flooding / earthquake to happen. Wondering what those naive
Chinese investors would do.

Just for the information about Richmond, BC: 10,000 houses are investment
properties (stay empty) in the city of 160,000 residents. If to assume that
each house is a living place for at least 4 people then it means 25% percent
of its population has gone somewhere. 40,000 of Canadians were forced to live
somewhere else, down in US presumably.

------
tn13
This article has 0 information.

The return on investment on a house is not just the cost of the house but also
the rent money you have saved by staying in your own home. In fact without
that you cant get +ve return even in upscale real estate investment.

------
dsfyu404ed
The popular perception that land is a good investment comes from the wealth of
the 1950s allowing tons more people to have fond memories of vacationing
somewhere picturesque and then the interstate highway comes along making those
areas logistically practical. Even if you have a pile of hazmat sitting on it
land that's within a ~20min drive of the ocean is not going down in value.

Add to that the tax incentive structure and buying a house that's sitting on a
huge chunk of land that can be subdivided years down the road if desired makes
good sense for many people.

------
rdlecler1
Meanwhile in San Francisco, house prices have increased an average of 6.6% for
the past 60 years.

[https://experimental-
geography.blogspot.com/2016/05/employme...](https://experimental-
geography.blogspot.com/2016/05/employment-construction-and-cost-of-san.html)

If he's taking the national average, which will include plenty of low-demand
areas around America, then his comments are not very enlightening for most of
the readers of the NY Times who tend to live in high-demand.

Add to that, you still have to pay to live somewhere.

------
lvs
FYI, the author is a Nobel Prize in Economics winner for his work in this
area.

~~~
k2enemy
And yet he misses some obvious things.

Would you buy farmland, let it sit barren, then sell it years down the road?
Of course not -- you would rent it to farmers. This income would need to be
included in the returns to buying the land.

~~~
pbhjpbhj
Unless you were getting subsidies to leave it barren? Such subsidies haven't
been unheard of in the UK under the EU farming system.

~~~
dmoy
Quite common in the US too

------
cloudjacker
This was not insightful at all

~~~
paulpauper
agree. vague article and sparse evidence

------
shitgoose
why don't we take period 1971 to 2016 - a brave new world of modern economics
(fast forward gold standard, wars and other barbarities). standard and poors
grew from 100 to 2,100 (i.e. about 20 times). farm land price grew from 200 to
3,000 (i.e. 15 times) and it grew straight like an arrow, except for a small
hump in 1980's. unlike stock market unicorns. nothing disappointing about
this!

this is a 5 min back of an envelope calculation, correct me if i am missing
something.

------
paulpauper
TLDR version:

For home prices, a good part of the answer comes from supply and demand. As
prices rise, companies build more houses and the supply floods the market,
keeping prices down.

------
putlake
Entry load of 6% (real estate commissions)

1% penalty every year (property tax)

Exit load of 6% (commissions again)

That is why real estate tends to be a worse investment long-term compared with
the financial sector.

~~~
vonmoltke
You are inaccurately double-counting the commission. There is no "entry load"
for residential real estate.

Also, your analysis excludes the utility value of having a roof over your head
or tenants paying rent. It basically assumes you buy a house and let it stand
vacant to cash in on appreciation. Nobody in their right mind does that.

------
HappyFunGuy
Home building > Home owning Building beats speculating Speculating is only as
useful as it modifies builder behavior.

------
known
45% of USA is uninhabited ;)

