We are excited to announce that Jonathan Miller, who has long authored the most authoritative report on the residential real estate market, is partnering with The Real Deal. Below, you’ll find his Housing Notes column, which will now run on our site several times a week. In addition, Miller’s quarterly report for New York City, which he published through Douglas Elliman for more than three decades, will now be “The Real Deal report, prepared by Jonathan Miller.” Miller’s data venture, Streetmatrix, which provides hyperlocal data, will provide statistics to TRD Data subscribers.
— TRD editors
Perfect illustration of relationship between land/house
I came across the image below on social media today. I can’t seem to make out the source of the image provided, but the person who shared it is a professor of urban design.
Please indulge me, but I am going to be super simplistic in describing the relationship between the value of land and the home that sits on it.
Forget about the tax write-off aspect for a second and consider that the value of a home (excluding land) declines over time unless it is updated to break even. Think of it in the context of not updating the home for 30 years, which makes the concept much easier to understand. The house will slowly fall apart. We purchased one home in the past that made us house-rich but cash-poor. Early on, with young boys, it was all we could do to replace the roof, paint the exterior, maintain the landscaping and update the electrical (the house was built in 1825), just to keep it in the condition we purchased it in. Once each update was completed, it was important to understand that the home would begin to decline in value again. If a home is renovated with a new kitchen and baths, once the renovations are complete, it will have value above its previous condition, but it will then begin to decline in value again. It is a constant battle against the clock while we become on a first-name basis with everyone at the local Home Depot or True Value Hardware.
But it’s your home, and you can do almost anything you want to it. I think of a townhouse in Greenwich Village where the new owner painted the exterior in Hot Pink, if that’s worth it to you.
Meanwhile, in most housing markets, land values eventually rise over a 30-year period, and the cash-poor homeowner can sell for more than their original purchase price. My bigger point here is that home ownership requires a constant investment in the house just to keep it in line with the market, because most of your neighbors are doing the same.
Sidebar
I was doomscrolling on “X/Twitter” the other day while acknowledging that social media is not what it used to be. (If you want to avoid a lot of the awfulness of what the X/Twitter has become, stick to the “Following” channel rather than the “For you” channel which is how I stumbled across the first graphic earlier.)
Real estate price growth is in the land
Back in 2014, I was hired as a columnist for Bloomberg Opinion — note my official Bloomberg headshot then, since I looked about 12. I wrote a column there once a week about the housing market, and I lasted about a year. It was difficult because I had to write my columns in Bloomberg-ese to make it past the editors, and it was challenging to get my brain to present information that way. They were very supportive, and I’m very appreciative of the opportunity. Even though about 25 percent of my columns were the top ten most-read of the day on the ±350,000 Bloomberg Terminals, I wasn’t allowed to convey my views in my own style of writing (I only have one style, ha.). So I’m especially grateful to The Real Deal for letting me write about the housing market my way.
One of my most-read columns was a piece called “Housing Bust Wasn’t About the House”. I tracked U.S. land prices from the Lincoln Institute of Land Policy and house prices (residential structures on the land) from research by the Wisconsin School of Business. The pattern was clear. Land prices were much more volatile over time, and the price pattern seen in land prices would look familiar to most consumers as the trajectory of the U.S. housing market.
Final thoughts
Housing operates as a dual asset: the structure steadily declines in value without ongoing investment, while the land drives long-term, often volatile appreciation. This makes homeownership an active capital-allocation decision between use and investment, while you are dragging your kids through the hardware store trying to find out what the heck an orbital sander is for your latest project. Yet the home’s value is largely shaped by timing and location rather than by the home itself.
In the search for affordable housing, there should be much more emphasis on understanding the behavior of land as an asset class.
The actual final thought — Here’s how I feel about people talking disrespectfully about NYC (NSFW, but wait for it).
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National home prices inch up as major metros slide