The Rational Capitalist: Houses Are Not Investments
If, as you imply, houses are not investments then my definition of investment differs from your. I can see the consumable rule applying to a hamburger but not to a ‘good’ that retains value in the market place. The house, while possibly of eroding value, retains value to other purchasers. In that sense, I see a house to be a money substitute, something that an individual may choose to invest time and energy into rather, especially when faced with fiat currency, than something akin to a Madoff investment scheme.
Would you grant that to a builder or a developer, a house is an investment? In the sense that an Ipod is the reason we build the factory, a capitalist will purchase the necessary ‘bricks and mortar’ to build a factory to produce a consumer good, anticipating a future return on the original investment. In that sense, I can see the house to be rather similar to a few crates of Ipods. Do you consider the investment characteristic to end when something is not able to produce futher goods?
If I choose to build a hotel with my ‘bricks and motar’ does the hotel become an investment? If that is the case, renting the house to someone should also recatigorize the house as an investment.
- Beth said…
Did the comments at Rational Capitalist help with the confusion, of do you still see an owner-occupied house as an investment? I am currently working on a post about this topic (although in more general terms) and your point of confusion could help me know what needs to be better clarified.
Feel free to email me.
Beth (Wealth is not the Problem)
- February 21, 2009 7:55 AM
My particular circumstances vary from the norm. I happen to be an owner/builder so my house contains my own labor as a value component. I’m built on a site that will be valued as prime real estate regardless of market conditions and I see this as my retirement investment. I happen to hold a clear title so the only ongoing costs are utilities and taxes, which in my case, Canada, I’m able to defer until I sell the place.
But with respect to houses or rather one’s home, I see it much the same as investing in hard currency or some other tangible entity that is more in control of a small investor than say the stock market.
I do agree that in the pure sense, houses are at the end of the production chain for most people.
- February 22, 2009 11:18 PM