Kuta Beach

Kuta Beach

Friday, 30 January 2009

Super Genius on the Housing Bubble

Someone on Youtube who calls himself Super Genius (because he has multiple degrees and an IQ above 170) explains the housing bubble in America. He claims that property is one of the worst investments because houses experience no technological improvements. A house is just a house. Nothing changes about the house. Because of this, we can expect a house to rise in line with inflation. Companies like Microsoft on the other hand add value with new products and innovations like Windows XP, Hotmail, etc.

Property developers can add value to a house through renovations, although Super Genius claims that this comes from the cost of the developer. That is, if you put $10,000 worth of renovations into the house, the house's intrinsic value goes up by $10,000 only, which means you don't make any money from this. I do believe that a swimming pool by itself is worth less than a swimming pool near a house and so proximity of the pool to the house does indeed add value.

Adding a pool to the house adds value because it appeals to those who like luxury. I do believe that most houses fulfill a very basic need, which is accommodation, and as such we won't see pools in most houses as it is a luxury good. As far as accommodation is concerned, it's a very basic service that I don't think you can improve on. There can be improvement in luxury and aesthetics, but accommodation won't see any improvement. This is why I believe units are cheaper than actual houses and why units don't offer much capital growth potential.

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