Housing Causes a Conflict, Investment or Affordable
The current fall in housing prices shows a wonderful example of how the price of something everyone wants, in this case housing, falling can be as painful or more than if prices rise to fast.
There is a conflict at work here. Home owners and near term home owners want prices to rise over time. That is those who currently own homes want to price of their home to look like an investment. This would mean the price of the house someone is willing to pay for it latter is higher above inflation. Not bad, we have heard for years how real estate is a great investment, but what does this mean for everyone else?
Everyone else is low income, or the very young who wont own their home for many years. This is the fight of housing affordability. From a social point of view affordable housing is very important, governments have tried for years to make housing “more affordable”, but do we really want housing to be more affordable? Governments have also done everything they can to encourage home price rising. Be it tax deduction, home owners credit, zoning etc. How many times have you heard of community bi-laws that were to maintain property value?
High property values are in direct conflict with with affordability of housing. People should remember though that a home is a place to live, provide shelter and security, or at worst, store your stuff. Why should our home be investments? Isn’t the investment in having a place for a family an investment in them?
While once I own a house I would love for it to rise in value quickly such that I could sell it in the future to trade for a lake house or other. Problem is if I have children I also want them to afford their own home.
So what will home prices do? I expect home prices over the long term to rise slightly faster than inflation. The rise will be in lock step with the rise in productivity. That is our average wage rises faster than inflation, and we will commit a standard percent of our wage to housing. Other pressure, as building smaller homes being difficult with rising pressure from government for more permits, water hook ups that are over priced etc. That builders can only build larger houses to keep these coasts under control.
In short prices will only be what people will pay for them. Don’t expect to make big money off your home. Unless you can add value to a property (fix it up, develop etc) expect to get what you paid for it after inflation, on average.
I leave you with the plot of house prices as a multiple of income, you tell me what you think house prices are going to be in the future?

