Companies make cars, people buy them, everyone knows that a car is a depreciating asset (except for current used car shortages, and certain collectible classics) but people still buy them.
This is because they are very useful.
A house or an apartment is also quite useful without being an asset that appreciates in value. The whole rental market is based on this concept.
I don't see why housing needs to increase in value to incentives people to build it.
And in Japan this is exactly the case, it's not typical for housing to increase in value in Japan.
This seems to miss the point. Within this metaphor, the companies that make the cars are the construction and real estate developers - both of which are driven by the profit motive.
You can have a profit motive driving behavior without something being an investment vehicle.
Cars are an example of that. Even when scarcity has driven the cost of cars up (such as during the recent pandemic), everyone recognized that more could, and would, be produced, and so no one viewed them as an investment vehicle, that adding time in somehow increased the value over the initial purchase price.
Housing is viewed that way. Part of that is due to location; there is innately a level of scarcity (not everyone can live in (insert city)), but there is also massive artifical scarcity. Even where there's room, there is NIMPYism and zoning regulations and etc that keeps enough housing from being built in areas people are able to live (i.e., close enough to civilization to be able to buy groceries without an hour long drive each way, for instance), forcing pricing up, in a positive reinforcement loop (scarcity = pricing goes up = people buying for the 'investment' rather than a place to live = more scarcity)
In America, this is basically the ONLY way "normal people" can make money (or at least used to be - those of us who didn't "get on the bus" in time have missed out).
Unless you create valuable intellectual property (ie. inventor, etc), or unless you're a doctor or lawyer, you're mostly just barely getting by. Those of us who were able to invest in housing, and take that ride, might actually have enough economic security to retire on.
So why does it have to be that way?
Because the politician who tries to change this system, will get voted out of office.
I don't want to say bad things about democracy. I love democracy, and I think it's one of the most important human innovations of the past 2000 years.
But the way we practice it in the USA; we're basically voting for our own extinction.
Yeah, I understand the politics of it, and you're right that it's incredibly politically challenging thing to change.
But it's not a fundamental property of how markets for housing have to work. Housing doesn't need to be an appreciating asset for building housing to be a viable business to be in.
It costs a ton to build a house in the US. If I gave you free land likely it would cost you more to build a new home there than it would to buy an equivalent which would include the land.
It does cost a lot, but in most cases you're going to get more bang for your buck. (and you can also forgo features you don't like or need: like a homeowner's association; or pre-existing utility connections you don't want).
The other thing about building a home - particularly if you're in a high-demand area, the appreciation in the first 2 years is pretty insane.
> Because you need them to outlay capital now in return for likely future profits? That's literally what investing is.
A builder is paid to build. They profit if their revenue is greater than their costs. That is certainly possible even if housing isn’t an investment vehicle.
The makers of candy bars manage to profit yet I doubt many people buy them as investments.
> Builder != Developer. The builder is a service provider and definitely doesn't finance construction.
What in my post doesn’t apply for developers exactly? They finance construction if they expect to profit. They can profit even if the final product later doesn’t increase in value. In fact, why would they see that profit anyway? Any increase in value would end up in the final owner’s pocket not the developer.
That doesn't address the point. Think if food was an investment item, rather than just a thing farmers make to sell at a price greater than what it cost them to make it.
Similarly, why aren't houses just a thing that costs a bit more than the bricks and labor required to make them?
>Similarly, why aren't houses just a thing that costs a bit more than the bricks and labor required to make them?
Because words like "housing" and "houses" in conversational speech hides the fact that it has 2 major components: (1) land and (2) the building structure
The big part of rising housing prices or "scarce housing" or "demand exceeding supply" is really about desirable geographic locations.
Sure, raw materials prices like lumber and copper pipes go up in price too but it's also the rising land value that's contributing to the "return on investment". That's the component price that doesn't work like food commodities. My home is decades old and has outdated technology that today's brand new homes have upgraded but nevertheless, my so-called "house" has tripled in value because a new hospital down the street was built 10 years ago and all the doctors want to live in my neighborhood to have a short 10-minute commute. If someone actually bought my so-called "house", they may bulldoze it and rebuild a new more modern home on it.
>> The big part of rising housing prices or "scarce housing" or "demand exceeding supply" is really about desirable geographic locations.
Only to a point. Many desirable geographic locations have a lot of local factors that prevent additional housing from being built with the intent of housing more people (think homeowners defending their "property values", zoning laws, etc). Similarly, homes being "investments" means there's a self-perpetuating cycle; builders build luxury homes instead of multi-tenant buildings, because they know that's what companies want to buy (being flipped the easiest with the highest rate of return), so even when there is new land being developed, market forces push it to being an "investment" rather than housing people. Income inequality furthers this; why use the land and sell a modest home to a worker, when you could use the home and sell a luxury home at a much larger markup to the rich?
Right, that's a major point. So why is it that we're ok with land prices rocketing? After all the immutable properties of land are not going to change from us pouring more money into it. You don't get more central London land from raising its price.
There are 2 aspects to this. Development should absoulutely be a thing this is investment in the same way investing in a manufacturing company is investment.
Buying/building property to rent should absolutely be a thing as well. There's a service there. But the idea that i buy a house now and in 5 years it's worth more than i paid for it (relative to income) needs to die
