Because houses are assets, which are closer to stocks than food or cars.
imputed rent is the cashflow if you live in it.
If you own vs rent you transfer that payment stream into servicing an asset. Assuming the asset goes up that's generating an implicit cash flow (one you will have access to later when you sell the asset).
If you can buy your house with cash then your "housing" cash stream is suddenly freed to be spent elsewhere, so you "gain" a cash flow you didn't previously have.
You can make a fair argument that this is a semantic quibble or one of the usual human self-deceptions but this is how people implicitly think of it.
That's not a disqualification of an asset, if devaluation is outstripped by increased valuation over time. eg I live within a parcel, that parcel is not transformed into a liability.
I would disagree with that. Stocks that don't pay dividends don't generate cash flow either. Assets are items that are bought with the intention for them to generate value. That value might be cash flow, or it might be an increase in value so that you can sell it later. Not all assets generate cash in real time (most don't).
A house is an asset because a) it allows you to pay your liabilities for housing into an equity generating account, and b) people generally expect them to increase in value.
To put it another way, if they weren't an asset, people wouldn't care if they depreciated. I don't care that my car depreciates because it isn't an asset; I don't expect it to increase its value or hold its value.
You can buy a brand new 4 Bedroom house in a nice part of Tokyo for ~$300,000, but don't expect to make money on the deal.
Shelter is much closer to "food" than to "a piece of paper representing a stake in part of a corporation".
Right, but using the raw purchase price of the house isn't a good measure. Mortgage rates dropping would cause housing prices to go up even if monthly payments stay the same. What actually matters is how much you spend per month on rent, or if you owned your house, the imputed rent.
>Shelter is much closer to "food" than to "a piece of paper representing a stake in part of a corporation".
From a finance perspective there's no difference between a house and a share in a corporation. They're both productive assets that provide returns. In the case of a house, it provides shelter as a service, which can either be consumed by the owner (by living it it), or by selling it (renting it out). The only difference is that with a house, the relation to you is more direct, as opposed to a tiny fraction of a multinational entity.
Right, but in most markets rent prices track property values. The long-term upward trend in housing prices is inflation to approximately everyone who doesn't own a house. Which, significantly, includes approximately everyone under the age of 20 or not yet born.
> From a finance perspective there's no difference between a house and a share in a corporation.
From an investor's perspective, perhaps.
But most people are not buying housing primarily as an investment. Most people are buying housing primarily as a way to shelter themselves from the elements.
Consumer finance is finance.
and that's fine, because rents are tracked directly in the CPI.
>But most people are not buying housing primarily as an investment. Most people are buying housing primarily as a way to shelter themselves from the elements.
That's what they tell themselves, but from an analytical perspective there's no difference between buying a $1M house that provides you $5000/month return in the form of imputed rent, and buying $1M in stocks/bonds that provides you $5000/month return in cash, which you can use to pay rent.
Only for embarrassingly impoverished analytical frameworks.
Unless you know of a bank that will loan me seven figures at sub-3% interest rates based on 10% down and my income, and then let me spend that money in the stock market :)
That does indeed make a x% return in the housing market more attractive than a x% return in the stock market, but has to be considered against all the other factors as well eg. diversification, actual returns (historically stocks have higher returns), risk (10x leverage also means 10x more loss), costs (stocks require no upkeep, houses require yearly maintenance), etc. At the end of the day though, it's still an investment as opposed to something you consume.
From a finance perspective, theres no difference between food and a share in a corporation. They're both productive assets that provide returns. In the case of food, it provides sustenance as a service, which can either be consumed by the owner (by eating it), or by selling it (on the side of the road, or in a restaurant.) The only difference is that with food, the relation to you is more direct, as opposed to a tiny fraction of a multinational entity, and it depreciates much faster.
/s/
when you have a hammer, everything is a nail. When you see the world through finance, everything is a series of cashflows. The ability of a worldview to be applied to many things does not mean it is applied well to those things.
The primary purpose of a house is to, well, house people. Shelter is a necessity. People who are most vulnerable to inflation are the poor, who mostly rent, and thus pay current market prices. They also pay the most for healthcare on a per care instance basis, and often pay for college with expensive debt (5%) if they go to college.
If CPI, etc, are not measuring these price changes, perhaps we should use another measure that does.
Clearly not. After you eat a bread, it's gone. After you live in a house it's still there. A better analogy would be something like a farm, which continuously provides sustenance as a service.
>The primary purpose of a house is to, well, house people. Shelter is a necessity. People who are most vulnerable to inflation are the poor, who mostly rent, and thus pay current market prices. They also pay the most for healthcare on a per care instance basis, and often pay for college with expensive debt (5%) if they go to college.
Should farm (or food producing corporation shares) prices be factored into the CPI as well? Like housing, food is also a necessity, and buying a farm would ensure you're protected against inflation in food.
Also, your point about buying housing as some sort of protection against inflation doesn't tell the whole story. Yes, it's a hedge against future rent increases, but here's no free lunch because the inflation is already priced into the price of the house. If rents are expected to 10x in the next 10 years, you can be sure that housing prices will grow accordingly. That's why price-to-rent ratios are insane in coastal cities.
After you live in a house a long time it falls apart. Capital Expenditure restores the asset to its previous value. Bread just depreciates faster. but can still be traded, bought and sold. In Japan houses are often only ever used by one family, and the house is destroyed when the land is sold. I am taking your insistence on a cash flow perspective to its logical extreme to show that it is not always applicable.
Corn is an asset when it is bought and sold. It is food when it is consumed.
> Should farm (or food producing corporation shares) prices be factored into the CPI as well?
I clearly say at the end that if CPI is not measuring these price increases we should use a different measure. I'm not sure you understand what's going on in this conversation, but food is in the CPI.
> Also, your point about buying housing as some sort of protection against inflation doesn't tell the whole story.
Where on earth do I say this? I say that poor people are exposed to inflation the most, especially increases in housing prices. We should have measure for what working Americans are exposed to, and do not.
1. the part of a house that's getting expensive isn't the house itself, it's the land. the multi-million dollar homes in san francisco would only be worth a few hundred thousand tops if they were moved to rural idaho.
2. corporations fall part too. more specifically, their physical assets (eg. machines in factories) fall apart. In both cases they're kept up by routine maintenance. The only difference is that in a corporation the maintenance is paid from revenue before profits/dividends are paid out, whereas in a house the maintenance is paid out of pocket by the owner.
3. it's not a question of deprecation. after you eat a piece of bread it's gone. that's not due to depreciation, it's due to you consuming it.
>I clearly say at the end that if CPI is not measuring these price increases we should use a different measure. I'm not sure you understand what's going on in this conversation, but food is in the CPI.
That's my original point. Rent (and imputed rent) is directly measured in the CPI, so there's no need to measure home prices.
Consider three people, p1, p2, p3.
P1: works at job making $X and rents home entire life.
P2: works at identical job making identical $X and buys + pays off identical home.
P3: works at identical job making identical $X and buys + misses 10 mortgage payments on identical home.
P1 is WAY better off than P2 or P3. Literally, the difference between retiring and working until you die.
"can afford down-payment and also has enough stability to never miss payments" induces a VERY extreme nonlinearity in outcomes that CPI very much fails to capture.
I don't think anything you've said in this thread even comes remotely close to acknowledging the reality that over half of America lives every day.
the broader point is that asserting a house is just an asset is more a value statement (and more abstractly, an aggression) than a truism. investment has generally become decoupled from its intended purpose of producing value for the many, not just the few (i.e., the efficient allocation of capital), and this kind of misguidance contributes to that kind of misallocation.
Not exactly, because there are two definition of "asset". From wikipedia:
https://en.wikipedia.org/wiki/Asset
>In financial accounting, an asset is any resource owned or controlled by a business or an economic entity.
https://en.wikipedia.org/wiki/Asset_(economics)
>An asset in economic theory is a durable good which can only be partially consumed (like a portable music player) or input as a factor of production (like a cement mixer) which can only be partially used up in production.