• No Bull
  • Posts
  • Treating Housing as an Investment was a Mistake

Treating Housing as an Investment was a Mistake

And what we can do to change it

Author

Brendan O'Hare
March 08, 2023

Housing is often considered an investment by families in the United States. It’s one of the primary drivers of wealth in most American households. We also encourage home ownership through tax breaks, and wealth appreciation. Unfortunately, this doesn’t help those without the ability to own a home, which requires a significant long-term commitment, good credit, and, of course, a lot of money.

Housing is an investment for many families who look toward homes to build wealth. Though, as far as investments go, it’s a poor one. You’d be better off investing in a S&P 500 ETF or a Vanguard Total Market Fund in terms of potential higher returns, lower fees, higher liquidity, and more diversification.

❝

From 1968 to 2009 the average rate of appreciation for existing homes increased around 5.4% per year. Meanwhile, the S&P 500 averaged an 7.5% return; small cap stocks averaged 11.5% per year. The rate of inflation was around 4.6%. We don't expect real estate investments to grow much more than inflation.

Some people may argue that housing is a good investment because it offers benefits such as appreciation, home equity, tax deductions, and deductible expenses. They may also point out that renting may not be cheaper than buying in some markets or that owning a home may have emotional or personal value for some people. But these reasons are not enough or convincing enough to say that housing is an investment. First, appreciation and home equity are not always sure things. They depend on things like location, demand, supply, and maintenance. Second, tax deductions and deductible expenses may not be enough to make investing in a home worth the high upfront costs, depreciation, and lack of liquidity. Thirdly, renting may offer more flexibility, mobility, and diversification than owning a home. Lastly, emotional or personal reasons for owning a home are subjective and don't show how well housing performs as an investment.

In conclusion, housing is not a good investment because it doesn't give consistent and reliable returns, it exposes investors to big risks and costs, and it keeps them from pursuing more profitable and diverse opportunities. Treating housing as an investment is a bad idea that can lead to financial stress, disappointment, and regret. So, if you want to invest your money in a smart and responsible way, you shouldn't fall into the trap of thinking of your home as an investment. Instead, you should focus on other assets that offer better performance, liquidity, and diversification. By doing so, they can achieve their financial goals more effectively and efficiently.

Maybe Treating Housing as an Investment was a Colossal, Society-Shattering Mistake

Thoughts on science, economics, politics, relationships. Not an expert.

goodreason.substack.com/p/maybe-treating-housing-as-an-investment

No Bull is the only media outlet that aims for Houstonians in every part of town to live in cozy, secure, and charming communities. As such, No Bull is supported solely by readers like you and corporate sponsorships. If you would like to contribute to urbanism advocacy and coverage in Houston, you can donate here. I’ll be back on Friday with more about our great city.

Elsewhere on the internet

Join the conversation

or to participate.