[ttul]

Real estate returns have been juiced by government policies for decades. The interest deduction, government backing of mortgages, and implicit guarantees of mortgage backed securities. Aka the cost of buying a house to the consumer is lower than it should be on a risk adjusted basis.

[cryptonector]

The cost to the consumer of buying a house is probably higher than it would be without these incentives, actually, because it ends up causing more money to spill into real estate.

It's the same with college costs: every additional dollar of federally subsidized loans made available to the public adds a dollar to the cost of college, almost necessarily so.

[zimablue]

You've mixed up two things here I think.

Returns vs Cost of buying a house.

The point is that the government subsidies make the profits on buying real estate high, which leads to high prices.

So both are true: "high cost of buying a house" "high returns on real estate"

Obviously they can't be true forever, the upper limit I guess is the ability of the lower classes to rebel divided by their tolerance of being priced out of their own land.

[kbutler]

The grandparent was describing the long-term vs short-term effect of broad subsidies.

The short-term effect of a subsidy is a reduced cost to the consumer.

If subsidies are generally and persistently available, this reduced perceived cost increases demand, causing increased prices. The ratio of price increase to amount of subsidy (and thus whether the consumer or producer benefits from the subsidy) will depend breadth of the subsidy and on elasticity curves of supply and demand.

Then there's the increased demand because the subsidy increases ROI. further increasing prices of the fixed input (land/existing housing) to the good (living space).

[cryptonector]

Thank you. That is roughly what I meant to convey.

Mind you, because these subsidies are never really temporary, I suspect the immediate effect on prices is always to raise them. And perhaps even temporary subsidies cause price rises just by increasing demand, though the price rises might only be temporary.

[cryptonector]

I was... responding the last sentence of the parent.

All economics and human societies, really, are bubbles. Very, very long-lived bubbles. Obviously growth on Earth is ultimately limited, so yeah, these very long-lived bubbles cannot go on forever. The real trick is to predict when any one bubble will burst!

[mcguire]

If you look at Figure 1 at http://voxeu.org/article/rate-return-everything, the advantages of housing returns predate those policies by decades, although it looks likely that the policies have stabilized the returns since they have existed.

Edit: The actual paper breaks down the data between all data and post-1950. The advantages of housing appear actually greater pre-1950, before those policies.

[lr4444lr]

All true, but since I can't get the PDF to load maybe you can tell me, how were the costs of real estate included? Calculating yield for real estate is not as obvious to me.

[mcguire]

One of the other comments had an archive.org link; there's a fair section on that.

[justherefortart]

Yeah "juiced". Versus a company that can not only write off all interest and fixes (unlike a person). But corporations can also depreciate the asset.

But it's the individual homeowner that's juiced. Lmfao.

[valuearb]

Corporations are just an extra layer of taxes in the individuals who own it.

[justherefortart]

And thousands more write offs. I can't write off my lunch at 50% either for simply talking about "work".

Having owned 7 small businesses in part or in whole, you get away with a hell of a lot if you try. Having been an auditor, companies do so many illegal things they get away with, the ethical isn't even in the same category.

[ttul]

And the implied tax of maintaining the corporation.