Content creator Tomas Pueyo is not investing in real estate. Tomas writes the blog Uncharted Territories, In a recent post, he expressed his concerns about real estate investing.
Tomas’ concern about real estate investing centers around supply and demand. Tomas notes and documents well that real estate price appreciation has only taken place since about 1950. Prior to 1950, prices were stable and flat.
Mr. Pueyo identifies these housing demand drivers that have fed real estate price appreciation:
- Population increases.
- Population migration from rural to urban areas.
- Declining household size, or the increase in housing per capita.
- Increasing home size. Even as households grew smaller, house sizes grew larger.
Then Mr. Pueyo discussed supply dynamics:
- As new technology in transportation became available, cities grew as commuting remedies expanded.
- Innovations like elevators allowed cities to grow vertically as well as horizontally.
- NIMBY – Not in My Back Yard. Cities have constrained development in various ways.
Having outlined important supply and demand factors, Mr. Pueyo observes that growth in demand is petering out and supply constraints are lifting.
Populations are stagnating in places like Europe, or even declining in Asia, including South Korea, China and Japan.
Remote work has reversed the migration to cities back to rural areas. The decline in household size has also stabilized and even reversed in the face of increasingly expensive real estate. Home size has also reached its limit, perhaps again because of increasing costs.1 Mr. Pueyo even observes the constraints on development are easing.
You can read Tomas Pueyo’s entire article here.
But is he right? What do you think? I’ll have an answer with the next post.
Notes
- The impact of affordability is my own opinion.