25A049 What Houses Cost by Jim Davies, 12/9/2025

No way do I envy a young couple trying to set up home today; the price of an average house is over a half million dollars - see graph, thanks to statista.com.

Over the last 60 years that price has risen more than 24 times (that's $512K / 21K.) General inflation would have taken it up by only 10.5 times, to about $220K, so homes are now (512/220 =) 2.3 times more costly than in 1965, in real terms. Hence the hardship, to first-time buyers.

Why has this happened, and why will it not occur in a zero government society?

One reason is that rules for construction of new buildings, set by governments of States, have multiplied - as laws always do. Those mandated features add to the price.

I had expected the other main factor to be that population has grown faster than the housing stock, but was surprised to find that the opposite is true! The population over the same period grew from 194 million to 330 million (that's 1.7 times), while the number of available dwellings grew by about 2.5 times. So this would tend to lower house prices (in real terms, not inflated ones) - yet they have risen, defying economic theory. So some other factor must be at work.

Suggestions welcome; but one likely culprit is that a house is not just a home, it's an investment. Everyone's gotta be somewhere, so a home is a necessity, but due to the artificial incentives handed down by the FedGov, it also provides a very decent return on what the owner must in any case spend.

Example: suppose you put down 20% and borrow 80% of the price from a local friendly banker (actually it's from the FedGov, which has the FedRes print it for you, but let's not be picky) at interest. The interest portion of the loan repayment is tax-deductible, so the net cost of borrowing is lower than its market cost, which directly encourages the buyer to choose a home "worth" a higher price.

Meanwhile history reassures him (see graph, again) that the house will probably increase in value by 5 or 6 percent a year. If he expects to live in it for 13 years, that value will double. So if his leveraged 20% investment is $100K he can expect it to yield $500K in that time, for a borrowing cost made artificially low and which is in any case a necessity of life.

That's a pretty good deal! An asset gain of 500% in 13 years is on its own a yield of nearly 15% a year. Compare that with 2% or 3% in a savings account.

So I think the key driver of the housing price rise is the fact that buying one is not just to put a roof over one's head, but to invest well.

How will all that fare after government has vanished? - not so well, though along with the bad news (I try always to tell it like it is; A is A) there is some very good news too.

All those artificial incentives that make house-buying seem low-cost will have disappeared. You borrow so as to buy, you'll pay the market rate of interest and there will be no tax deductions because there will be no tax. Further, since that will make house-buying not so attractive as an investment, values are unlikely to grow as fast as the above shows they have been doing. And since there will be no general inflation, that juicy prospect of gaining 15% a year will not arise.

On the other hand there will be no laws governing how new houses shall be constructed. The builder will describe his offering accurately, and you the buyer will choose. As you should.

What more of that promised, counter-balancing good news? - at the time when government is dissolving, those with a mortaged home will be able to pay off the whole of the loan with a trunk full of then-worthless government paper (now known as "dollars") to discharge the obligation, and then enjoy the house free and clear. Then for the several reasons shown on page 69 of my Vision of Liberty, house prices will probably decline, bringing good news to everyone.

If so, the reduced cost of housing will liberate some earnings, which can be spent on other goodies including investments in other, commercial enterprises which will be working to raise the standard of everyone's living. I can hardly wait.