Thursday, April 8, 2010

Changes in spending, 1959 versus 2009

There was a superb article in The New York Times the other day by Harvard economist Edward Glaeser, titled "Why Your House's Value (Probably) Won't Rise."

In his piece, Glaeser looks at housing not through the idiotic romantic lens that most people do, including the current and last president who both promotes home ownership as a universal right. Instead Glaeser looks at homes as shelter, and examines what it costs to build a home.

Some great observations especially the point about people viewing homes much like they do stocks:

One reason that people may have come to expect consistent housing price appreciation is that houses are assets, like stocks, and stocks should, on average, appreciate.
People who buy stocks are giving someone else the use of their money. The only way that deal persists is if investors get a decent return on their money, either in the form of hefty dividends or rising stock prices.
Houses are assets, too, but it’s a mistake to expect them to offer a regular rise in price. Houses pay hefty dividends to their owners in the form of living space — that’s the real return on housing investment — and the basic economics of housing doesn’t point to perpetual price growth.
The Bureau of Economic Analysis has fantastic data for us nerds to feast on. Looking back to 1959, the percent that Americans spend on shelter has held remarkably stable as a percent of their income. The reason I find that remarkable is that the cost of building a home has benefited from similar technology improvement that have reduced the percent of income spent on clothing and food.

Of all the expenditures above, healthcare has increased the most. So what did we gain from that increase in spending? Well, 8 years of extra life expectancy and a HUGE drop in infant mortality, that ain't bad...

Copyright 2010 AlphaNinja

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