Why Owner-Occupied Housing Is A Bad Wealth Building Strategy

Why Owner-Occupied Housing Is A Bad Wealth Building Strategy

Why Owner-Occupied Housing Is A Bad Wealth Building Strategy

Moneybox
A blog about business and economics.
Jan. 20 2012 3:25 PM

Why Owner-Occupied Housing Is A Bad Wealth Building Strategy

Pawnbroker Jay Levy has a firmer understanding of this issue than most people:

It's the end of an institution, really. The shop has been operating since 1943, and in that location—a former bakery built in 1875—since 1969. Metropolis Development tried to buy the building to build condos in 2004, but owner Jay Levy wasn't ready to sell, waiting for its price to rise with the real estate values around it.

"The analogy is kind of like owning a home in the D.C. area," Levy told the BizJo. "You can get a lot of money for your house, but where are you gonna go?"
Advertisement

The point here is that an overall upward movement in real estate prices can't in a real sense make you richer. If your property appreciates a more than average amount that's one thing, but a rising average doesn't accomplish anything—to realize the gains, you'd need to acquire a new property at a higher price. It ends up mattering in practice largely because rising asset values allowed people to take on more debt. But debt is not wealth, and expensive houses are not a wealth-building strategy.