[HN Gopher] The Rate of Return on Everything, 1870-2015 (2019)
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The Rate of Return on Everything, 1870-2015 (2019)
Author : lazyjeff
Score : 81 points
Date : 2024-06-11 19:20 UTC (3 hours ago)
(HTM) web link (academic.oup.com)
(TXT) w3m dump (academic.oup.com)
| pineaux wrote:
| So basically, housing is the best investment vehicle based on all
| the numbers.
| andrepd wrote:
| Sad state of affairs, but yes.
| betaby wrote:
| Earth's population is constantly growing, thus yes.
| idiotsecant wrote:
| I wonder if this is still true once population growth reaches
| zero or negative. It seems like the baked in assumption of
| housing is that someone else is going to need it more tomorrow
| than you do today. I think this is an experiment the U.S. will
| begin running in earnest in the near future.
| betaby wrote:
| That if won't happen anytime soon neither for the Earth in
| general nor USA in particular. Media often loves to move
| goals from population growth to agin g population to
| fertility rate, etc. All those while connected do not negate
| the fact that population is growing, and growing fast. That
| 'once population growth reaches zero or negative' is very
| theoretical and UN is constantly underestimating population
| growth. So no, we will not see that in our lifetimes.
| rybosworld wrote:
| The population growth rate has consistently declined for
| 50+ years. It's around 0.8% from a peak of 2.2% in the
| 60's.
|
| There's no reason to think this trend will reverse.
| betaby wrote:
| Why should we use peak as a benchmark? Even 0.8% is
| insanely high, at such rate population will double in
| ~150 years.
| throwawayFinX wrote:
| The parent is not wrong:
|
| The total number of children in the world has already
| peaked (2017?) and is now dropping.
|
| The population growth should still continue for about a
| human lifespan from here (50-80 years depending on who
| you ask).
|
| That last growth is just those children growing up and
| becoming adults. I.e. They are the "last big generation".
|
| We will see the population drop again, if we dont fuck up
| the planet before that happens.
|
| I think you would have difficulty finding countries in
| the world where fertility rates (children born pr woman)
| are not dropping.
|
| Bangladesh went from 5.5 kids pr woman in 1985 to 2.1 in
| 2017. This is a global trend.
| mensetmanusman wrote:
| China loses 300 million in the next century, we will start
| witnessing the impact before we die.
| bee_rider wrote:
| Most developed countries will probably run the experiment
| before us, as long as we can keep the country appealing
| enough to keep attracting immigrants.
| monero-xmr wrote:
| Buy housing in hyper desirable areas that rarely become more
| dense. Everyone always loves the beach, whether there are 1%
| fewer humans next year or not.
| _DeadFred_ wrote:
| About that...
|
| https://eos.org/articles/ocean-waves-mist-decades-old-
| pfas-i...
| darth_avocado wrote:
| The hyper desirable areas are no longer affordable to even
| millionaires.
| bombcar wrote:
| It has happened, and recently, multiple times on local
| scales.
|
| "House go up" may be generally true in the abstract, but that
| doesn't mean _this particular house goes up_.
| jstanley wrote:
| Before 1950, yes.
| spiantino wrote:
| Especially when you consider all the tax affordances related to
| owning real estate vs. equities.
| bombcar wrote:
| Housing is only a true investment vehicle if you count _all_
| the costs.
|
| Even bare land has to be maintained somewhat. You can't just
| subtract purchase price from sale price and call it done.
| mensetmanusman wrote:
| Yeah, it would be interesting to have more transparent costs,
| especially with inflation. New siding every 20 years is $40k,
| a new roof might be $30k every 25 years, a new driveway, etc.
| darth_avocado wrote:
| Biggest of them all: interest. On a $1M mortgage, you'll
| almost pay $2M as interest over 30 years even at 7%.
|
| Historically interest was never as low as during the
| pandemic. And most people bought houses using mortgages.
| The average "cost" of owning a house is much more than the
| selling price, even before you account for the upkeep.
| smoovb wrote:
| A few of the links to the 5 other times this has been posted:
|
| https://news.ycombinator.com/item?id=16078059 on Jan 5, 2018
|
| https://news.ycombinator.com/item?id=19817584 on May 5, 2019
| superb_dev wrote:
| How can an entire economy have a growth rate? Is it not measuring
| how much "new money" was put into the system?
| toomuchtodo wrote:
| Demand increases due to population growth. Population goes
| down, growth goes down (broadly speaking, some caveats and
| nuance as always depending on some goods or services).
|
| Edit:
| https://journals.sagepub.com/doi/full/10.1177/21582440177360...
| bombcar wrote:
| Or demand increases due to some major new factor (which has
| happened a few times in recent history) that basically
| enables new energy extraction, or new resource extraction.
|
| But over very long periods of time, it does seem to mostly be
| connected to population.
| OscarCunningham wrote:
| It's nothing to do with money. We're literally producing more
| and better goods than the previous year. This can be due to
| better technology, more tools, or increasing population (and
| probably some other factors I forgot).
| jetrink wrote:
| Regardless of inflation or changes in the money supply, new
| techniques, new technologies, trade, and population growth can
| cause the value of everything bought and sold to increase over
| time. You can measure that value in dollars, or you can look at
| changes in the quantity and quality of goods and services.
| mensetmanusman wrote:
| An economy is simply the number of people times the average
| productivity per person.
|
| If lots of people are doing a lot of work powered by a lot of
| energy and productive technology equipment, the (material)
| economy is good.
| carlosjobim wrote:
| You live alone in the forest and chop wood during the winter.
| The next winter you're much better at the task and chop more
| wood. There's no difference in money supply, population or any
| such. But your economic output has increased.
| Etheryte wrote:
| Money doesn't affect the size of your economy, in general money
| is not even relevant to the discussion, save for the fact that
| it gives us a unit of measurement. Money is a relative
| resource, in a simplified manner, money dictates who gets what
| fraction of the pie. By printing more money you're not making
| more pie, just dividing the existing pie into thinner slices.
| Economies grow because of improvements in technology, science,
| using or finding natural resources, producing things etc.
| UniverseHacker wrote:
| I don't understand how housing can increase in cost in a stable
| steady manner, as a fraction of household income over long
| periods of time like more than 100 years. It seems to defy logic,
| so it makes me suspect how it is being calculated when people
| claim that housing costs have gone up by massive amounts.
|
| Since only a small increase would price a large number of people
| out of the market- it seems logical that housing can't really
| increase in cost/value over long time spans, but must track the
| overall economy almost exactly.
| bombcar wrote:
| There have been two major real housing price jumps that I know
| of, and both are correlated with significant household income
| increases (at least nominal). Almost everything else can be
| factored into changes in what the "nominal house" is - from a
| one room cabin without plumbing to a McMansion with a three car
| garage.
|
| 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.
| UniverseHacker wrote:
| Fair point, in that sense it seems like some fairly fixed
| step-ups are possible where people culturally decide to spend
| more of their income on housing, but it cannot be a steady
| trend to profit from as an investor, because it will always
| have a hard cap at 100% of household income. It can't
| steadily beat inflation over long time scales.
| georgeecollins wrote:
| To help you conceptualize how that is possible: 100 years ago
| the world population was 2 billion, and now it is 8 billion.
| While the housing stock is also increasing with that population
| growth, the actual amount of desirable land does not grow as
| fast. That's why -- for example-- the US gov't in the 1850s
| could just hand out 40 acre plots of land to people. They can
| still do that, but it has to be way out in Alaska or something.
|
| 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.
| throw0101d wrote:
| > _While the housing stock is also increasing with that
| population growth, the actual amount of desirable land does
| not grow as fast._
|
| "Buy land, they're not making it anymore." -- Mark Twain
| thbb123 wrote:
| To add to that, a house a hundred years ago was nothing like
| a house today: building codes, square footage per person,
| heating, plumbing, connectivity... Building and maintaining a
| decent housing unit is far more expensive in material and
| energy than it was 60 years ago.
| sdwr wrote:
| Housing has elastic demand, right?
|
| 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).
| carlosjobim wrote:
| With extreme consequences to the population. When people are
| not given space to create their own families, the result is
| the massive population decrease we're living through now in
| industrialised nations.
| tim333 wrote:
| They don't. The numbers in the article include imputed rents.
|
| 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
| bluGill wrote:
| right out of adam smith, when people get more money they
| typically spend it on better housing.
| UniverseHacker wrote:
| I'm talking about in proportion to income... for example, if
| people spend 30% of household income on housing, you cannot
| have an order of magnitude increase in housing prices over
| any time scale as it will always have a hard cap at 100%.
| Retric wrote:
| People get much larger houses today _because_ they can afford
| much larger houses. This comes from both increased prosperity
| and having fewer kids.
|
| _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...
| pessimizer wrote:
| > I don't understand how housing can increase in cost in a
| stable steady manner, as a fraction of household income over
| long periods of time like more than 100 years.
|
| 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/sq1p
| b/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.
| throw0101d wrote:
| If anyone wants to download the data, it's available at:
|
| > _The Jorda-Schularick-Taylor Macrohistory Database is the
| result of an extensive data collection effort over several years.
| In one place it brings together macroeconomic data that
| previously had been dispersed across a variety of sources. On
| this website, we provide convenient no-cost open access under a
| license to the most extensive long-run macro-financial dataset to
| date. Under the Terms of Use and Licence Terms below, the data is
| made freely available, expressly forbidding commercial data
| providers from integrating, in addition to any existing data they
| may already provide, all or parts of the dataset into their
| services, or to sell the data._
|
| * https://www.macrohistory.net/database/
|
| See also perhaps "Historical Returns on [US] Stocks, Bonds and
| Bills: 1928-2023" (updated annually AFAICT):
|
| * https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile...
|
| There's also the _The Credit Suisse Global Investment Returns
| Yearbook_ :
|
| > _The Credit Suisse Global Investment Returns Yearbook is the
| authoritative guide to historical long-run returns. Published by
| the Credit Suisse Research Institute in collaboration with London
| Business School, it covers all the main asset categories in 35
| countries. Most of these markets, as well as the world index have
| 123 years of data since 1900._
|
| * https://www.credit-suisse.com/about-us-news/en/articles/medi...
|
| * https://www.credit-suisse.com/about-us/en/reports-research/s...
|
| As well as:
|
| > _The Global Investment Returns Yearbook, an authoritative guide
| to historical long-run returns, launched by UBS Investment Bank
| Research and UBS Global Wealth Management's Chief Investment
| Office. This edition demonstrates the combined strength of UBS
| and Credit Suisse as the integration of the two banks progresses,
| and also marks the continuity of a longstanding relationship with
| the authors, Professor Paul Marsh and Dr Mike Staunton of London
| Business School and Professor Elroy Dimson of Cambridge
| University._
|
| * https://www.ubs.com/global/en/investment-bank/in-focus/2024/...
| smath wrote:
| Doesn't this contradict Robert Shiller who shows that housing
| returns are flat in the long term?
| mensetmanusman wrote:
| Housing prices may collapse over the next 50 years as the
| population pyramid inverts and buyers demand decreases due to
| fewer individuals. What is the definition of long-term though?
| throw_pm23 wrote:
| I'm not sure, population already plummeted in many places
| while prices went up, as people prefer to live less densely
| then they used to.
| kccqzy wrote:
| That calculation does not factor into the rent you will not pay
| when you buy a house and live in it. Imputed rent is a thing
| and you need to consider it. If you don't live in the house you
| wouldn't let the house sit vacant: you would rent it. In your
| formula the rent can be thought of as if it's a dividend of the
| investment.
|
| 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.
| throw_pm23 wrote:
| Wouldn't be the first time someone was wrong about something.
| ggm wrote:
| I shall continue to quote 7% as the acceptable long term rate of
| return in aggregate and look at apple, telsa, Nvidia, Google
| askance, wondering when they will return to baseline.
| JumpCrisscross wrote:
| "the only exceptions to that rule happen in the years in or
| around wartime. In peacetime, r has always been much greater than
| g"
|
| This explains the enduring link between populism and war
| mongering.
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