this post was submitted on 28 Aug 2023
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A car and a home are two very different things, so they can't be compared here.
Even the land your home is on increases in value over time, and I've yet to see a home in good condition that's worth less than the amount it was purchased for. Unless you're talking about those ghost cities in China.
What exact reason would you give to devalue a perfectly good home?
With respect to depreciation they are quite comparable. Deprecation is just the reflection of the remaining lifetime value of something.
Depreciation just tends to be more obvious in cars, because:
A home in good condition has approximately the same remaining lifetime value as a new home, so that stands to reason. Not to mention that with ever more stringent building codes, new construction cost has gone up, up, up. The used market always follows the new market.
Land does, but that's independent of the home. I mean, they are usually sold together, but the buyer will determine their utility value independently. Two identical houses will not fetch the same price if one of them sits on more desirable land.
And the remaining lifetime of a home kept in good condition could be many generations. Where with a car... you could pass that gas guzzler to your kid, but that's about it.
In fact, homes can often be renovated to extend their original life far beyond even a few lifetimes. This ignores any upgrades that increase the value (i.e new pool, deck, etc.)
Right, so it wouldn't be depreciated like a car (which loses value to nearly nothing at the end of its usable life).
That's my point, though. When you invest in a home, you are also investing on the land it sits on. So you're free to sell the home AND land, or just the land, if you like. It's rare to see just a home (without the land) being sold.
In your example, the homes are still the same value, only the land changes the sale amount.
There's no reason why either home would depreciate in value like a car, and the commenter has yet to expand on this idea.
Kept in good condition is the key. If you keep a car in good condition, it can last many generations too.
Same goes for cars, of course. There is a whole automotive industry around taking beat up old cars and restoring them to pristine condition. And, indeed, many of those cars can sell for way beyond their original price.
Right, it would deprecate because houses deteriorate. If you keep your house in good condition, it's just you paying the deprecation cost up front when you restore it rather than taking the hit with the next guy in line. The math works out the same either way. The depreciation doesn't go away.
Less common, but not unheard of. It happens often enough that there was once a Canadian TV series about moving houses.
Exactly. Their values are evaluated independently of each other. The house can depreciate and the land can appreciate.
I think that you'd need to be reasonable with what you'd expect to pay to keep a car running for generations.
I can't see anyone wanting to spend tens of thousands of dollars keeping their Toyota Corolla running for generations.
Cars were never built to last 50+ years, no matter how good you maintain them (The average *maintained *car lasts around 12 years or around 320,000km). The ones that last 50+ years are in museums or auto shows. By contrast, 50-year-old homes are common and quite expected, and if maintained, feel like a new home!
Yes, as collector vehicles, not as daily drivers. I don't think anyone envisions affordable housing as a home you'd get on the side to use only occasionally, which is what the cars you describe would be.
I don't disagree, but the person I was replying to makes it seem like a house's value should always be in decline. That doesn't make any sense, unless it's been left to rot, which I don't think people do when they are living in one.
Of course, I've seen a few homes being moved myself! Nobody does that for a house that lost all its value. 😉
They just might if a 2023 Toyota Corolla was effectively the same as a 1823 Toyota Corolla, differing little beyond coming in a more appealing colour of paint. Only needing to spend tens of thousands of dollars to have a new car would be a good deal.
That doesn't happen because of the technical innovation happing in cars. Restoring your 1823 Corolla to new condition is nothing like a 2023 Corolla. It will still get you around, but with no cabin, air conditioning, power steering, radio, slower speeds, etc. who would want it? We already discussed this.
They are always in decline. You can spend more to buy the depreciation out when you restore it, or you can let it slip and spend that when you sell it, but the decline happens either way. There is no avoiding it.
Well, there is one way to avoid it: If the cost of new housing goes up sufficiently, it will drag the used market it with it. That could see an appreciation in value even with some wear and tear. In fact, we saw exactly that happen in the used car market recently when the "chip shortage" sent the new car market sky high. People were selling their used cars for more than what they were new.
That doesn't happen. Exactly. The comparison between cars and homes is silly and we can end it here.
If there is a decline, yet people are able to profit from selling them home, then there isn't a practical decline, is there?
Circling back to the original comment that I replied to, "A home is meant to be a depreciating asset like a car is.", we've already established that a home without upkeep would be depreciated until it actually costs money to demolish the thing. We've also established that a home that's been maintained and updated should not only hold its original value, but be worth more than it cost.
I still don't understand what the argument is. Are people hoping that nobody can ever make money from the sale of a home or the land that their home sits on? Who would want that?
They are not comparable in every way, but with respect to depreciation, the reason they both depreciate is the same: They both deteriorate over time and with use. Depreciation measures the cost of that decay. The original context was specific about it referring to the deprecation aspects.
I'm not sure that is established. It is established that it is technically possible for that to be true if new homes prices are rising in kind. That has definitely been the case over the past decade, or even the past few decades.
But over the long history? Traditionally, homes in good condition have only kept pace with inflation. Historically, if you bought a home for $100,000 then you should be able to sell it for $100,000 (we'll assuming inflation is zero to keep things simple) a decade later, assuming you've kept it in the same condition. Great.
But let's say you had to put $25,000 into upkeep during that decade. So your original cost was actually $125,000. You had to eat $25,000 in depreciation costs when you sold it for only $100,000. Had you done nothing, letting it rot over those 10 years, then the house would only sell for $75,000. You also had to eat $25,000 in deprecation costs. It's the same either way.
I didn't see an argument. What are you referring to?
As it was pointed out, a car in good upkeep is only expected to last around 12 years or just over 300,000km. A home in good upkeep can last 100+ years, so what depreciation did the original poster think would happen if someone decided to sell their home after 5 or 10 years?
Yes, and I agree that's how it works. Except that home/property values fluctuate, so after 10 years, that house (and the land it sits on), even without $25,000 put into upkeep, may sell for $100,000 or more.
The original poster seemed to have a problem with people being able to recoup and profit from the sale of their home. I don't see why homeownership should be at a loss when it comes time to sell. The difference between a money pit (i.e. a car) and an investment (i.e. a home) is that you can get the money back that you invested + extra if you are lucky.
The original poster seemed to have complained about government involvement distorting the market. I'm not sure that's quite the same thing.
Every car I've ever owned returned all the money back that I invested and then some. Why the hell would you buy one otherwise? They also depreciated, but that doesn't matter when the gross investment returns are greater than the depreciation cost.
Perhaps I didn't understand their sarcasm. The government didn't distort the market so that people can make money from the sale of their home and property. Unless they are going back to a time before governments, when people were trading animals for land and so on... the owner would get as much value as the person buying it had in the acquisition. This almost always turned a profit for the seller, unless they were completely desperate.
As in, you've profited from the sale of every car you've owned? Or that owning a vehicle, allowed to you not spend as much as you would have without one?
If it's the former, then it would be unheard of, unless you're omitting some critical detail.
I can't speak for other people, but I'm sure convenience and "my job" are at the top of the pile. If given a choice, I don't think most people would want to own a car, especially if affordable housing is on their mind.
I also don't think many regular consumers are buying cars for some chance to profit from the sale of them afterwards. I think the majority of car owners have resigned to the fact that they will never recover the costs of owning a car.
I profited from owning productive capital. You know, an investment!
I certainly wouldn't. I don't like owning a car. But it has been hard to turn down the return on investment potential. Where else were you going to get those kinds of returns?
In the past, that is. I haven't bought a car recently. With the price of vehicles today, it's not clear if there is still much ROI to be had – it seems pencils have been sharpened pretty sharp. But I'm not looking for one right now either so I haven't crunched the numbers very hard.
I wouldn't think so either. If they are looking for a bank account that returns some interest, they're more likely to go to a bank. But if they're looking for an investment, cars have been pretty good (maybe no longer; we shall see).
Well, a home needs to be repaired and improved before sale. This is part of what the market demands. Gets more complicated with land, yeah... leads me back to zoning laws. If the land is so valuable in the suburb of a city, it should have multi-unit housing on it. Then the rich are forced to pay that raising cost and the poor get an increased supply of housing.
This is part of the investment a homeowner makes, and increasing the value of a home through repairs and renovation really shouldn't be looked at as a bad thing.
If you are renting a place, you expect the same repairs and improvements to be made, which is why rent doesn't simply drop because of “depreciation”.
Well, some people do sell their land so that developers can have their way with it. I don't think that's a good thing overall, since there needs to be some balance.
But multi-unit housing on expensive land does not make it affordable. Having an income that's above the median, in addition to renting, is what Stats Canada says is affordable housing to the majority of Canadians.