A hundred years ago it took much more labor to produce enough food to feed a person. Before the industrial revolution let's say 90% of all people were farmers. In 1850 in the US that was maybe 50% of all people were farmers. So the % of GDP going to food was much higher. Now 1-2 people can feed 100 in the west. That means less of your income proportionately goes to food.

Similar declines in the amount of labor required to produce a thing are happening in manufactured goods. So it may have once taken hundreds of hours of human labor to build a car, but now it takes much fewer.

So the wealth of everyone is going up faster than the supply of desirable land. That does mean people are getting priced out. But also people find ways to live on less land. Before the industrial revolution most families needed a farm to survive. Now many, many families can live in an apartment building in a city that takes way less land.

1950s: The average new home sold for $82,098. It had 983 square feet of floor space and a household size of 3.37 people, or 292 square feet per person.

2010s: The average new home ($292,700) offers 924 square feet per person (2.59 people per household, 2,392 total square feet) — three times the space afforded in the 1950s.

https://compasscaliforniablog.com/have-american-homes-change...

If you plot house prices against incomes they do a wave pattern which is high at the moment. But they were even higher against income in 1845.

Article here has data from 1845 for the UK https://archive.ph/FRzaA

1.) Go from a single income supporting to a house to multiple incomes supporting a house. This is actually happening, with the shift from single-earner households in the 1950s to dual-income households to groups of unmarried professionals living together as roommates. The preponderance of post-1950s data can also overweight this effect: historically, the norm was far large extended families to live together in one household, and the single-earner U.S. nuclear family was an aberration created by suburbanization.

2.) Have reset points. How can real estate continue to return 7% real returns for 120 years? Well, return 7% for 40 years, at which point your investment is up 15x. Then bomb the house and kill the owner. Then give the land to the guys who helped you kill the owner at a low, low price, help them build a house on it cheap, and start the 7% appreciation calculator over again from a new low baseline. This is also very close to what actually happened over those 120 years, between WW1, WW2, the Russian/Ottoman/Austrian revolutions, the fall of the Warsaw Pact, the Chinese Civil War / Cultural Revolution / Great Famine, and so on.

3.) Have a smaller percentage of people owning houses. The average housing price can absolutely escape the confines of the median income, if the median person does not own a house. The study's use of rent and imputed rent partially controls for this, but the broad answer for "Housing prices can't outstrip incomes forever, can they?" is "Sure they can, if nobody can afford houses."

4.) Have more people. If you're talking the returns to an asset class, and you own all that asset class, and then suddenly there are more people that need that asset, you're going to make money. This, to a large degree, actually happened during those 120 years.

It's the density death spiral. Dense housing gets more expensive (yes, dense housing IS more expensive!), that in turn drives even more density.

The only way to fix it? Promote suburbs and smaller cities. There is literally _no_ other fix.

It hasn't. House prices have been stable for hundreds of years. They're currently being used as financial vehicles, and as another government asset inflation to ward off that pesky balance of accounts reckoning, but they'll be back down eventually.

Rents are different, probably because landlords collude. Or irrational exuberance or whatever. Times when everybody suddenly agrees that housing is worth a lot more, for no particular reason.

Some guy here (https://www.reddit.com/r/Economics/comments/sq1pb/graph_of_c...) plotted the 2000s housing bubble vs. inflation-predicted price.

I would say that the fact that we didn't see a dip after the bubble makes it pretty obvious that if you deal in financial instruments around houses rather than houses themselves (including rents), there had to be a lot of money made that never came back. Renters never got a refund of the inflated rent that they paid during the time of those inflated house prices; that seems like it would account for the 6.6% a year that this paper claims as the return on owning housing. Because the buying and selling of houses is ultimately going to be a wash.

That says to me that housing bubbles are required in order to make any money from housing. That money will be supplied by renters and overextended owners who can't buy when prices return to the ground, and can't hold out until the next bubble.

One was the great urbanization post-world wars and the other was the great increase in dual-income households.

But if you factor things out and try to correct for as many variables as you can, housing is pretty "steady state" though the percentage of income directed toward it that's acceptable has crept up somewhat.

Shelter is, like food, one of the few real necessities and so it will be bid up to the point of pain or worse if there is a scarcity.

Based on prices, you can have roommates, children can live with parents, etc.

Real housing costs could double tomorrow, and people would survive (not happily).

Because my grandparents with their two kids and great-grandma literally lived in a one-room studio in the 1950s, even though they weren't poor. (Grandpa was an engineer for state railways, a good job in 1950s Czechoslovakia.) The toilet was common for 3 households. That was just the standard of living back then. You wanted to be warm, you had to drag coal upstairs from the basement and feed the home furnace. Daily.

In 1964, all five moved to a 3-room apartment, which increased their living space a lot, but it would still feel incredibly cramped by today's standards. It had a separate toilet just for them, though, and centralized heating. No more hauling coal upstairs. Progress!

Of course that those smaller, more primitive apartments were much cheaper than the house built in 2022 that I am now living in, and that is stuffed full with various sophisticated devices.

There are more people than ever and the surface area of the planet hasn't increased.

Alternatively just read the linked article; the linked article makes the correct fair comparison. You will arrive at that conclusion by reading just the second paragraph, which says

> data on total housing returns (price appreciation plus rents) has been lacking (Shiller 2000 provides some historical data on house prices but not on rents). In this article we build on more comprehensive work on house prices (Knoll, Schularick, and Steger 2017) and newly constructed data on rents (Knoll 2017) to enable us to track the total returns of the largest component of the national capital stock.

Shiller is explicitly mentioned. And the article authors disregarded it because it failed to include rent.

This is an ultra simplistic formula, made by someone who's been born, raised and fed in a highly socialist country where the only word politicians know is "tax".

So if you need a haircut but can't afford one, and I give you a new £10 note to get a haircut, and the barber works the extra 10 minutes to do that haircut and earn that £10 there's no new pie there.

Looks like 10 minutes more output to me.

"Printing more money" does make more pie. That's exactly what happens every time a loan is taken out, or government hires somebody who would otherwise be unemployed.

"Printing more money" leads to "shredding more money" via loan repayments and increased tax take, all via increases in the utilisation of existing resources.

That because "printing more money" is about buying something. That something has to at least potentially exist or more money will not be printed and circulated in the first place.

and also not evenly distributing those slices according to previous ownership %.

But over very long periods of time, it does seem to mostly be connected to population.

I would argue that under a centrally planned economy, you could have the same number of people working, using the same tech/equipments and energy, but not be a good economy because the output isn't what those individual participants in the economy wants to consume.

"House go up" may be generally true in the abstract, but that doesn't mean this particular house goes up.

it's not a gift (implying it's free).

Owning capital has a cost - the cost of capital (aka, the cost of money). At minimum, the cost is the risk free interest rate.

The owner paid a pretty penny (or borrowed, at a higher than risk-free rate) to buy the property. The previous seller did the same, or invested capital in building the property itself. So therefore, "owning a house" is the last chain in a sequence of investments, all of which costs money.

The only ones I can think of are depreciation (analogous to capital loss harvesting), 1031 exchanges (loosely analogous to step-up basis; this is the biggest difference) and opportunity zones (analogous to QSBS).

If you borrow against your equities, you can deduct the interest paid on that. That mortgage-interest deductions are bigger is a function of the lending being federally guaranteed more than tax law.