Everyone says a home is the safest investment. Is it?

A home scores well on the trait that matters most: nobody can print more land.
But it fails others. You can't sell a bedroom, selling takes months, and it costs money every year just to keep it.
For most of history, homes barely beat inflation. Since about 1950 they have, mostly because the land under them got pricier.

Ask anyone older than you how to build wealth, and you'll probably hear: buy a home. It feels solid in a way money in a bank doesn't. You can touch it, live in it, and nobody can print more land. Against the five traits, a home does well on the first one. But it does badly on almost all the others, and it's the only store of value that sends you bills.

What history says

On Amsterdam's Herengracht canal, the same houses have been bought and sold since the 1620s. When one of them changed hands in the 1980s, its value after inflation had only doubled in about 350 years. A study of 14 rich countries since 1870 found the same pattern: real home prices barely moved until the mid-20th century, then climbed. Since then, homes have beaten inflation by about 2% a year on average, and about 80% of that rise comes from the land, not the building. Bricks age. Land is the scarce part.

Side note

Does more money mean pricier homes?

It's tempting to think homes simply float on money: print more, and prices rise. There is a link, but it isn't automatic. Germany created plenty of money and its homes barely beat inflation, while Japan created huge amounts and saw home prices fall for twenty years.

The stronger link is borrowing. When a bank grants a mortgage, it doesn't lend out someone else's savings: it creates new money, and that money goes straight into a home. That's not a bad thing in itself. It lets people buy a home years before they could ever pay cash.

But when everyone can borrow more, everyone bids more, and the price of land goes up for all of us. The person who borrowed gets the home, and the next buyer gets a higher price. It's the stadium effect we explain in "Why can't anyone afford a home?": when everyone stands up, nobody sees better.

Let's make it concrete

Elena buys an apartment for $400,000. Four years later, a job takes her to another city. Prices rose about 2% a year, so she sells for around $433,000, a $33,000 gain on paper. But buying cost her about $12,000 in fees, selling about $26,000, and repairs and upkeep about $16,000. She ends up roughly $20,000 down.

Fees and taxes vary a lot from one country to the next, so your numbers could be better or worse. The point is that buying and selling a home always costs real money.

Was it a mistake? Not really. She had a roof for four years, and she'd have paid rent anyway. That's a home's double job: it's a place to live and a store of value at the same time. That's its strength, and it's also its trap. All your savings sit in one building, on one street, and you can't sell just the kitchen when you need cash.

The story behind it

Stuck in place

Margaret has rented the same four-room apartment for 35 years. Her children left long ago, and her husband passed away. A smaller place would suit her better, but rules that protect tenants kept her rent low while the market kept climbing. A two-room apartment nearby would now cost her more than her big one. So she stays, and a young family who needs those four rooms can't find them.

Owners get stuck too. About half of American mortgages still carry a rate below 4%, many locked in around 3% during the pandemic. Moving would mean a new loan at a much higher rate, so they stay put, even when the house no longer fits their life. Renters and owners alike, the higher prices climb, the harder it gets to move.

Prices can fall, and sometimes they do, but that's the exception, not the rule. As long as they keep climbing, the ladder only goes one way: whether you start early or late, you never get to step down.

Isn't this a bit unfair?

Partly, yes. Whether you bought in 1990 or 2020, in a small town or a big city, decides more than any smart choice you made. And getting in at all takes a down payment that keeps growing faster than salaries.

So where does that leave you?

A home is first a place to live. Its store-of-value side is real, but it works over decades, not years, and only if you can stay. If you buy, buy something you'd be happy to live in for a long time. And if you can't buy yet, you're not failing: you're just standing in a stadium where everyone else stood up first.