Last week, The Washington Post published a piece entitled “Remodeling as an investment: Getting the most for your money.” It’s a summary of the most effective ways to spend a sudden windfall on improving your home, with a focus on improving resale value. If nothing else, it’s a good way to save the reader an hour of watching HGTV.
One line from the piece echoes a conventional wisdom that often goes unquestioned:
“But what about your house? It is, after all, the biggest investment most families make, and money spent improving it is generally borne out later in resale value.”
This is true. A home is the largest purchase most Americans will ever make, and home ownership has been a fixture of the post-war American Dream. Recent presidents of both parties have pushed for an “ownership culture” in America.
Of course, pushing for home ownership doesn’t necessarily imply promoting housing as an investment, though policies to promote ownership (like the mortgage interest deduction, low down payment loans, and the GSEs Fannie Mae and Freddie Mac propping up the subprime market) helped fuel the housing bubble of the mid-‘00s.
There are certainly some cases when treating a home as an asset produces measurable benefits (mostly when used as collateral or credit to finance a business), but these effects disappear or are reversed when home prices fall.
All of this is to say that treating homeownership as an investment is, when put under more scrutiny, a strange proposition. As Matt Yglesias writes in his book, The Rent is Too Damn High, there’s a certain tension inherent to this view.
When people buy new cars, they consider the car’s resale value. But that doesn’t mean they expect to turn a profit when selling it. They wonder how much value the car is likely to lose over time. A well-built car will maintain a fair amount of resale value. That’s a factor in purchasing decisions, just as investment value should always be a consideration when buying a home. Nevertheless, it’s not reasonable to expect a bundle of metal, appliances, concrete, bricks, and wood to increase in value over time.
Of course, there’s nothing necessarily wrong with buying a home to “flip” the property for a profit, but we would do well to stop viewing an asset that ravaged the finances of the people most heavily invested in their homes as an investment vehicle for Americans.