If something goes up more than inflation - it is a good investment, but also less affordable over time (it costs you more labor hours to purchase over time). Think - tech stocks, housing, etc.
If something goes up same/less than inflation - it remains affordable. Think - basic consumer goods we mostly import like laptops, t-shirts, etc.
It’s not that simple. First, risk is a also factor. But a real estate investor is not just looking for capital gains. They are looking at rent yields against costs (taxes, insurance, maintenance, interest).
Real estate can be a good investment even without appreciation in real terms. And that is a good thing.
Real estate investors play an important role in society. Without landlords, it would be impossible to rent a home. So anyone without the ability to purchase a home would have to rely on friends and family or charity, or sleep in the street.
Further if you made building housing easier there would be more available, with less price pressure from excess demand pushing prices and rents up.
I’m more interested in enticing developers to build than I am encouraging more landlords.
I am arguing against the claim "Housing can be affordable or it can be a good investment. Not both."
You support this claim with the argument that “If something goes up more than inflation - it is a good investment” and therefore it can’t be affordable.
I am saying real estate can be a good investment even if it doesn’t go up more than inflation. Do you disagree?
Further, for landlords to make homes available to rent, housing must be a good investment. Do you disagree?
Yes I think so. You need rents to escalate faster than maintenance costs (which are tied to inflation closely) for this to be a good trade. So again - for rent to become relatively less affordable over time.
If something goes up faster than GDP, it's a good investment, but less affordable over time, etc.
Really I think of things in two main buckets-
Stuff that's going up faster than income and therefore the sooner you buy it and lock in a level, the better. This is also something that you can invest in, because it means when you sell in 10-40 years at retirement, it will have appreciated.
Stuff that's going up slower than income, and I'll buy it as needed.
For example on the face of it - cars and houses should both depreciate. They cost money to maintain, that maintenance cost goes up over time (it is labor), and newer ones get nicer and nicer. However it is only cars that depreciate. And I don't just mean a used car. A 2000 Honda Civic started at $13k new. A 2025 Honda Civic starts at $24k new, and you now have good reliable Hyundai Elantra at $22k, which weren't as prevalent and reliable 25 years ago.
The fact that we underbuild is why houses refuse to depreciate though.
Perhaps, but at vastly different time scales. For most normal people a car degrades to beater status in just a couple decades.
Houses last more than a lifetime in most cases, barring natural disasters. Many centuries in some cases.
> The fact that we underbuild is why houses refuse to depreciate though.
Given that a house is seemingly good forever (no, not forever, but longer than a human lifespan) its value must go up at least as much as inflation. This is easy to prove by contradiction. Assume it didn't: it would mean two identical houses right next to each other would have vastly different prices depending on when they were built. But we know they don't, since comparables in any given neighborhood have about the same price (the value is assessed based on the comparables, after all).
If a house was built 30 years ago for $100K in labor and materials and an identical house across the street cost $400K in labor and materials to build today, the older house can't help but be worth at least as much because it is a comparable property.
Sometimes the argument is made that we'll just build so much that values are pushed below this, for both the old and new comparables. It is not clear to me who that "we" can be though, since no builder is going to afford to sell houses below cost of construction.
I think we will see more baby boomer houses go on the market which are near full teardown as the remaining value is the land only.
Not sure if you've lived in wood framed SFH, but stuff built in the 40s-70s really shows its age now.
Lots of $10k-50k costs that start to creep in as you need to replace roof every 10-20 years, wooden siding/shingles (10-20 years), all the windows (20 years?), boiler/furnace (20 years), central air (20 years maybe), etc. If you need to replace hardwood flooring could be $20k.
My parents have well water and even though it's treated, after 50 years if you were doing a gut renovation you'd probably replace all the pipes. Could switch to city water but thats about $50k.
The masonry on their chimney just cracked and a baseball sized chunk fell on the deck, I dunno $5k. Speaking of the deck, it needs to be torn down and replaced.. $10-20k.
Did I mention their home is worth like $300k on Zillow? These things don't go all at once, but they start to hit more and more often past a certain point.
And this is before the era of particleboard pre-fab construction which I'd imagine will breakdown faster.
If you are replacing major structures of the house every 10-20 years, something is wrong. That is not normal.
The house I grew up in is turning a century in a few years, and nothing about it suggests it isn't good to go another century at least. Original windows, who replaces windows every 20 years? Why?
Multiple friends live in houses their grandparents or great-grandparents built, those are well over a century. Perfectly comparable (in valuation) to new ones built a block away. And that's why houses won't depreciate in the timescale of a human lifetime.
Modern windows leak their argon out eventually. The break-even for replacing them is bad, but home comfort in rooms with many windows is greatly improved in cold climates with top-end triple pane windows.
They kinda do, in many places? Around here, past a certain age, your house is basically a tear-down, where it's a liability over just having an empty lot. Or if you really want to save the guts it's still getting torn down to the studs for new wiring/plumbing/insulation.
Where is around here and what that certain age? That's wild to me.
Of course you can ruin a house to the point it is best to tear it down. Even a 5 year old house could get there with enough gross neglect.
But assuming any kind of occupancy and minimal maintenance, that's not normal at all. Any house will outlive you and your grandkids and great-grandkids with any kind of reasonable care.
Here's a house over a century old, totally not a tear down. Nothing special about this one, just the first hit I found in zillow:
https://www.zillow.com/homedetails/326-Menker-Ave-San-Jose-C...?
Maybe the NorCal climate is too mellow and houses last more? Ok then, let's look at Boston, certainly a rough climate. Here, a house built in 1880, totally not a tear down:
https://www.zillow.com/homedetails/11-Victoria-St-Dorchester...?
Maybe Boston is too rich, so they spend a lot on house maintenance? Ok let's look at, dunno, Pittsburgh (rough climate again). Here's another 1920 house, looks beautiful to me, definitely not a tear down:
https://www.zillow.com/homedetails/587-Moorhead-Pl-Pittsburg...?
Even in the furnace of Phoenix, a young city, I easily find a century old house, very beautiful one:
https://www.zillow.com/homedetails/56-W-Windsor-Ave-Phoenix-...?
So, where is it that you live that houses become tear downs within one human lifetime?
Look at that Boston home for example, nearly nothing inside that home is original. Even the floors look replaced. Certainly all those windows, the siding, the roofing.
Look at the kitchen and baths, all redone in last 10 years probably.
Look at the bedrooms - mini splits, also probably done in last 10 years. You can probably assume a pretty good gut reno to get that all done, at which time they may have gone all the way to the studs and done electrical & plumbing.
I have friends who live in 100+ year old apartment buildings that once you reach a certain project size you might as well go down to the studs because the old fuse box electric isn't up to modern requirements and god knows what's in the pipes.
Do you think the furnace/boiler are original?
That $1.2M home may have had $400k of renovation work in the last decade, depending on how much was done all at once. My point was that "reasonable care" involves a lot of 5-figure projects over the years, or a giant 6-figure project per lifetime.
Houses become tear-downs mostly based on economic viability and comfort, not based on their habitability. I lived for ~10 years in a desirable inner-city neighbourhood that was originally bungalows from the 1960s. In the time I was there close to 50% of the bungalows were torn down (or trucked off - last I checked the value of the physical home being trucked off was in the $10k range after costs) and rebuilt with either larger homes or denser units.
My landlord bought a second bungalow in the area and did a full reno, keeping the guts, and by his math he was basically break-even per sq ft over tearing it down and building bigger/denser.
To your original point, the 1960s bungalows and the 2010s homes (or 1960s home renovated to modern standards) do have vastly different prices. Modern builds are much better from so many perspectives - electrical, plumbing, layout, lighting, insulation, heating/cooling, air quality, fire resistance, etc. (including ways that can't be upgraded even with a gut job - e.g. you can't upgrade from 2x4 framing to 2x6 framing for extra insulation space) - it would be deeply weird if all of those improvements made no difference to prices.