Land and Houses


Via Yves Smith, a very cool chart from Visualizing Economics:

Yves comments:

This serves to confirm the idea that from a policy standpoint, housing is best regarded as a forced savings vehicle or a store of value rather than an investment.

I think the best analogy for it (borrowed from Robert Shiller) is that a house is like a very large boat. It’s a depreciating durable good. The fact that the boat has resale value is relevant to your decision-making process, but you don’t generally buy a boat expecting to sell it down the road at a profit. You buy a boat because you want to cruise around in a boat, or else because you have some kind of business venture that involves using a boat.

That said, a house does differ from a boat in one important respect. Generally speaking when you buy a house you also buy a patch of land that contains the house whereas when you buy a boat you don’t become owner of a piece of the ocean. And while buying land probably isn’t a very smart investment strategy for your average household, it’s perfectly coherent to think about a speculative market in individual parcels of land. Climate change will alter weather patterns and destroy the value of some currently useful agricultural land. The invention of air conditioners made land in Miami more desirable. The decline of Michigan-based auto companies has made land in Detroit less valuable. The opening of the WMATA Green Line made land near the Columbia Heights Metro Station more valuable.