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Corrado's avatar

Good article for a generic warning but there is a lot missing in your analysis.

First, real estate is really local. Since buildings cannot be moved (generally), they cannot be considered as a commodities. Living in Manhattan is not like living in new Jersey for a multiple reasons although the two locations are only few miles away. Making general statements on the entire world cannot be precise.

Second, real estate is not just residential. Hospitality and logistics are booming, office market is shrinking and retail is softly recovering after 5 years of collapsing. Any sector have different cycles which follows different pace and direction.

Third, you ignored innovation, renovation and conversions. Old buildings cannot be converted often into modern space so they will lose their values unless in extraordinary locations while more modern products will preserve their intrinsec value. On the other hand, in some specific locations old resi building can be demolished and converted in something else. So again, it depends on the (micro) location.

Fourth, the analysis pre WWII is difficult to compare to our next future. Before the 1940 in most of the world there was no need for a permit to build a house. You could be bulding everywhere, you did not need any connections with sewer, eletricity network, etc. Developing today is getting harder for several reasons amongst which environmental impact valuations, longer planning procedures, political willingness, physical constraints, etc especially in the most demanded (again) locations.

As someone said in the past, do not forget the 3 most important elements in real estate: location, location and location.

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Jonas Hummler's avatar

Recently was pointed to another great post about this. Works in progress, "the housing theory of everything". Expensive housing has some really bad, often unexpected, downstream effects on the economy. This provides another huge incentive for governments to tackle the crisis.

Should be obvious that housing is a bubble, growth on the order of 100 of % are not an indicator of a sustainable model. In terms of rent, people are already paying like 40-50% of their net income for rent, can't go much higher than that without inciting a revolution...

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