[capisce]

Some more highlights:

> In terms of total returns, residential real estate and equities have shown very similar and high real total gains, on average about 7% per year.

> The data summary in Table 3 and Figure 2 show that residential real estate, not equity, has been the best long-run investment over the course of modern history.

> Although returns on housing and equities are similar, the volatility of housing returns is substantially lower, as Table 3 shows. Returns on the two asset classes are in the same ballpark— around 7%—but the standard deviation of housing returns is substantially smaller than that of equities (10% for housing versus 22% for equities).

> Predictably, with thinner tails, the compounded return (using the geometric average) is vastly better for housing than for equities—6.6% for housing versus 4.6% for equities. This finding appears to contradict one of the basic assumptions of modern valuation models: higher risks should come with higher rewards.

Seems the way the real estate market works has caused a big drain both on economic growth (as investments have gone into real estate rather than more productive products), and on economic equality.

So a Georgist land value tax does seem like a pretty good idea.

[ttul]

Real estate returns have been juiced by government policies for decades. The interest deduction, government backing of mortgages, and implicit guarantees of mortgage backed securities. Aka the cost of buying a house to the consumer is lower than it should be on a risk adjusted basis.

[cryptonector]

The cost to the consumer of buying a house is probably higher than it would be without these incentives, actually, because it ends up causing more money to spill into real estate.

It's the same with college costs: every additional dollar of federally subsidized loans made available to the public adds a dollar to the cost of college, almost necessarily so.

[mcguire]

If you look at Figure 1 at http://voxeu.org/article/rate-return-everything, the advantages of housing returns predate those policies by decades, although it looks likely that the policies have stabilized the returns since they have existed.

Edit: The actual paper breaks down the data between all data and post-1950. The advantages of housing appear actually greater pre-1950, before those policies.

[lr4444lr]

All true, but since I can't get the PDF to load maybe you can tell me, how were the costs of real estate included? Calculating yield for real estate is not as obvious to me.

[justherefortart]

Yeah "juiced". Versus a company that can not only write off all interest and fixes (unlike a person). But corporations can also depreciate the asset.

But it's the individual homeowner that's juiced. Lmfao.

[api]

I do like seeing confirmation of what is patently obvious. Real estate is The Problem, at least in economically healthy areas.

In economically vibrant cities real estate hyperinflation has soaked up all the gains and locked them up in non-productive assets, serving to enrich only banks and rentiers at the expense of individuals and more productive entrepreneurial activity. I've been whining about this for over a decade.

[pascalxus]

Yes. And a big part of the problem is people's perception of real estate. This idea, that real estate is doing "well" when prices go up, is completely flawed. When RE prices go up, it should be considered a bad thing, a sign that the market is sick: supply is not allowed to increase sufficiently to meet demand, causing endless negative externalities, needless suffering for everyone.

[osrec]

Could not agree with you more. London is a classic example at the moment! Even after 5 years of working in the city, most people struggle to buy a studio apartment in a bad neighborhood.

[mcguire]

What is an "economically healthy area", and what is "more productive economic activity", if the return on capitol is much larger than the growth rate?

[Spooky23]

That’s a really one dimensional analysis. Real estate has been and remains one of the major drivers of economic activity.

The stuff you are upset about is just the downside of increased productivity and consolidation. The only reason you have the wacky real estate costs in certain places is that the money people have concentrated in a few places. Their convenience is more meaningful than the inflated salaries required to support housing that’s 10x the national average.

People have a fundamental drive to improve their home to enhance its value but also be more pleasant and suited to their wants and desires. That drives everything from home improvements to furniture to art.

This ideal of a higher density residential society with lots of landlords that is popular on HN right now is a terrible future. Landlords want one thing — maximum return on assets. That means high cost, minimum possible opex.

[rifung]

> This ideal of a higher density residential society with lots of landlords that is popular on HN right now is a terrible future. Landlords want one thing — maximum return on assets. That means high cost, minimum possible opex.

How is that different from what homeowners want? Don't homeowners already block legislation that would allow higher density units to be built because it would decrease the value of their homes?

At least in the Seattle area where there are many high rise apartments and a lot of competition, companies seem to have to invest in making their apartments nice.

[zanny]

Density alone does not imply landlords, though. It is a very business centric view of housing to have density imply rent. In a simlar vein to how I wish more people would even talk about business cooperatives you can have a residential building that is also managed in a cooperative of its tenants. Such arrangements share swathes of the issues more general cooperative businesses have (like how nigh-impossible it is to start one) but there really are not only two roads out of the development hell we are in right now, where one leads to self determination where everyone is a property owner of a factory minted mcmansion with a standard slab of astroturf while the planet desertifies into an inhospitable fireball or everyone is subservient to tyrannical money hungry landlords in cramped conditions with rationed electricity and water access.

[pwthornton]

Anything less than higher density in more areas is a catastrophic future for all of us. Sprawl is driving climate change. Sprawl hurts environmental air quality. Sprawl hurts health with long commutes and a lack of walking and exercise.

[wnissen]

How does this all square with the Case-Schiller home price index, which showed something like a 1% real rate of return (i.e., just barely above inflation) for properties over time. As I understand it their data is based on comparable house sales and isn't subject to many of the common errors that occur when the mix of homes for sale shifts drastically.

[wnissen]

Apologies for replying to my own comment, but apparently they are including the "imputed rent" in the calculation. That is, the amount of rent you would have paid if you didn't own the home. The thing is, you have to live somewhere, so if you didn't own the home you would have been paying rent. That's why the imputed rent isn't included in Case-Schiller, because as an investment you're not living in the home and it would be double counting to assume that you are. So I'm quite skeptical of this analysis that equities are the same rate of return as housing.

[mrep]

Can you link an article/journal on why a land value tax is good? I have seen this come up a few times in hacker news and yet I still can't find a good article/journal for why land value taxes are better than other alternatives and I have read dozens of economics/accounting/finance textbooks none of which back up land value taxes.

[capisce]

"In praise of the land value tax": http://theweek.com/articles/553242/praise-land-value-tax

The Wikipedia entry on the subject: https://en.wikipedia.org/wiki/Land_value_tax