Multi-faceted and interrelated: a lot of housing would become a less attractive investment vehicle if near-substitutes were more plentiful. An overseas investor buying a Vancouver condo assumes that the asset will have high resale value (in addition to its use value as, e.g., a rental or airbnb). But in a saner world, housing would depreciate in value over time in proportion to its use and maintenance, like other durable goods.
That would make sense in a world where the surrounding location is completely static, but generally as a town/city grows it's much more desirable - more work for better wages, more business opportunities, economies of scale, better education... A world that doesn't respond to that with increasing price doesn't seem sane. Imagine that you start with a house in the middle of nothing. 20 years later there is a major city around you - and the house should be cheaper than it was when there was nothing? What about new housing around your house, should it have the same nearly zero price too? What even is depreciation in case of housing - my grandmother lives in a 120 year old house and I'm pretty sure my grandchildren will live there too.
Not so much it'd be visible in the price - maybe 5-10% up or down, more pronounced in remote locations. The location is the important factor. Realtors work with square area pricing set for entire towns or municipalities.
That REALLY depends on the type of housing, not only on location. And it also depends on the interest rate relative to inflation.
In fact, it's really similar to dividends on stocks, just with cost instead of profit.
For a house in a suburb or rural area, maintenance (enough to keep the house in the same condition you bought it in) can easily cost as much per year (on average) as the cost-of-money (interest rate - inflation) for the debt.
And in some case much more than that.
If one such house is twice as expensive to maintain (over time) due to differences in building materials, environmental conditions, size/geometrical factors, etc, the cost of owning the house over a time period may easily be 25-50% higher for the most expensive compared to the least expensive if we assume the same purchase price.
Purchasing a single piece of land with the expectation that it will increase in value, is similar in many ways as to do so with single stocks.
Land and stock tend to go up in value. But land also sometimes go to 0, just like stocks.
With the booming American car industry in the 50's and 60's, who would have thought that houses in Detroit could go from having a premium price in 1970 to be sold for $1 40 years later?
A single peice of land may or may not appreciate. but a diversified portfoilio of land will always appreciate if the last 10,000 years has anything to say about it.
The rockefellers and other "Old Money Family's" have the three rules to building multi-generational wealth. Land, Art and Gold.
Even for detroit, land prices have only increased since the 80's[0] and over long time horizons, i'm sure will be back in line with other "Single peice land bets".
> A single peice of land may or may not appreciate. but a diversified portfoilio of land will always appreciate if the last 10,000 years has anything to say about it.
I believe there are large parts of Europe that would take centuries if not a millennium to reach the peak value it had during the Roman Empire (measured vs gold).
In general I agree, though. A portfolio is fine.
Most people tend to have most of their "savings" in a single property though.
As an example, what do you think this $2500 property cost when it was new? (Edit: make that 1965, since it's quite old.)
Short of it being on a superfund site most residential land will never have a value of 0. It's called REAL estate for a reason. Partial ownership in a company can evaporate, but 405 park west, manhattan nyc will always be there, at least for the next million years.
Some actually sell for $1 ($0 may be technically more difficult), some may sell for less than 10% of what it was once considered worth, which is close enough to 0 for the difference to not matter much.
a person buying a condo in Vancouver generally isn't purchasing land, and if they are, then yes, the land might appreciate even as the thing built on it degrades over time due to a bunch of natural processes (e.g. wood decays)
someone buying a condo is absolutely buying land. That land just is split up across x number of condos. The appreciation that you get on the Condo, is the fact that the land is usually in a very ideal location. That's when the economics of "Going up" even makes sense.
> But in a saner world, housing would depreciate in value over time in proportion to its use and maintenance, like other durable goods.
Without any external influencing factors, a house would not typically depreciate. So a depreciating house isn't normal, there is something external causing it (like the city is going broke, lost most jobs, or environmental factors make the area bad to live in, etc).
But if all is well, a house will not depreciate if it is lived in and maintained. A house can last centuries and inflation means building an equivalent house is always more expensive later than it was to build this one.
So it is not natural to expect a house to depreciate.
Exactly! And important to recognize the interest groups behind preventing progress on each.
Fixing the issue has been stymied for too long by each pointing at the others and saying "They're the real problem!" to justify inaction / rolling back fixes on their pet interest.
These aren't all issues though. Another contributing factor is that home/lands ownership can be inherited.
That's going to be the biggest contributer as time goes on (not right now though), as eventually all desired land will have been bought by what amounts to an oligarchy.
Honestly, land/homes should never be inheritable, and companies should never be able to own land altogether.
Not that this would ever happen. The status quo is too profitable for the land/home owners.
Eh, nah. But, there should be inheritance taxes set at a level which prevents the formation of a "landed gentry". Unfortunately, the issue has been demogogued to the point that middle-class people (who won't have anywhere near the assets to be taxed, as in not by an order of magnitude) treat the idea as anathema.
The middle class is afraid of taxes that are "for the rich" being extended to tax them. And not without some reason - income tax was sold as "only for the rich".
Immigration Numbers alone are Wörth nothing. How many people emigrated. How many people died? Tell me how the Population Numbers chnaged per years instead If Just looking at Immigration.
Well since Canada only has a slightly declining natural population rate, not many in comparison to births?
They added 500.000 people to their populace since the beginning of the year. The births are on top of that.
It‘s not true that immigration numbers are worth nothing. Immigration happens mostly in densely populated areas, thereby further increasing home prices.
Just shy of 1% of people die each year (~389,000 people) but the birth rate is just over 1%. That means all immigration counts towards the pop increase
Uh, it's not strange at all to expect a single cause when a system fails. Rather, there's often a chain of failure but with one thing at the head. You can look at how a car breaks down - you go from a single belt failing to a damage spread around.
Your list can be easily sorted this way (Notably, foreign nationals with money are just an instance of asset price inflation, in no way an instance of "nuance" or something).
I see the chain of causation thus - a flood of printed money has increased the value of all capital assets (some of that money appears as the money of foreigners and some of domestic investors, some as hedge funds, etc). Housing has been a focus and areas with restricted supply are where the money has been most attracted (it's spread more and more as the scale increases - a key point of the gp).
The problem is multi-faceted.
Is there asset price inflation due to cheap money? Yes.
Have foreign nationals been parking their cash in real estate in certain western countries? Yes.
Has restrictive zoning and NIMBY-ism reduced the incoming supply of new homes? Yes.
Multiple things can be true at the same time, all contributing to the current state of affairs.