Wednesday, December 5, 2018

What Would Housing Prices Look Like Without Government Intervention?

Viresh Amin emails:
Do you ever foresee a period in the future where housing prices do not gradually go up over time as they have done so historically. Also can you point me in the direction of what housing prices look like without government intervention?
RW response:

The primary reason that housing prices go up is because of central bank money printing. In the United States, this is money printing that is done by the Federal Reserve Board.

Without Fed money printing, you would see a general decline in the prices of old houses over time, just the way you see a general decline in the prices of old cars.

Because the Federal Reserve money printing tends to push prices higher, people don't realize that houses depreciate over time and that price gains are mostly the result of house upkeep mixed with Fed money printing.

That said, it is possible a given house could buck the general decline in old houses, if there wasn't Fed money printing, just like it might happen for an individual car, say a 1967 Firebird.

It is also possible that a region could get "hot" pushing prices up in that region. But as a general rule without Fed money printing old houses would decline in price. 

I hasten to add that other non-monetary mad government schemes could push housing prices higher but, in a free market, old houses would decline in price and possibly new house prices also as productivity gains might make production of new houses cheaper.

A further point with regard to government intervention, there is also the possibility of non-monetary government interventions that push housing prices higher, such as restrictions on construction of new houses, rent controls, government housing subsidies, etc.

Given Fed money printing and the penchant for government interventions in the housing sector the long-term trend for housing prices appears up, with occasional dips when the Federal Reserve for a short period slows money printing. 

1 comment:

  1. An old house should decline to near the value of the parcel on which it sits minus the cost of demolition. The value of the parcel is about location, location, location. And changes in the money supply of course.