Quote from @Amby Bhagtani:
I have a very basic question (almost sounds silly), I keep hearing property prices always go higher in the long term (not referring to short term fluctuations). Apart from that's how its been historically can someone explain to me how this works, when the worlds population maybe at the verge of declining.
I actually think this is a really interesting question. It's a important fundamental that most don't actually know or comprehend, and why later analysis struggles, because the foundation comprehension is weak.
Three main factors. And this fact of the 3 main factors, creates a 4th factor actually, because given several force factors to ascending price, it's insulates from downward fluctuations.
The first, let's address the population item. Let's say population stays dead flat, which it has not and is not today, but we will get to that later but for now let's say it stays dead flat. So your assuming that would mean housing would stay flat, 0 demand right? But that's assuming housing is eternal, which it is not. Housing is actually a DEPRECIATING asset, just as your CPA. yes, it's true, housing is a depreciating asset just like a car, cell phone etc, just on a longer timeline. Yes, housing wears out and, in time, will go to 0, ie be demolished. So housing at 0 added new demand via population, has an existing demand via REPLACEMENT. So keep this in mind, there is a cycle of replenishment for existing population base.
Now unto population growth. yes, population growth has been slowing BUT that's only specific to exactly that, the rate of growth, it's a skewing of facts because of math. Here is the thing, if you have a room of 100 people, and add 10 people to it, that's a 10% growth, right. Ok, now if you have a room of 1,000 and add 10 people, that only 1% right. So, is population declining? It was 10 people added before, it's still 10 added now, the ADDED people is the same BUT since the total size is so much bigger, the ADDITIONAL people seem smaller, way WAY smaller, because of the math. Now, the rate of growth is slowing, yes, but it's still the same # of people added.
During covid outbreak and "mass deaths" the US population still GREW. The US alone has about 400 million people, what looks like a tiny % growth rate is, in actual real numbers, millions of people.
Lastly is tied to the above two which is M2, or Money supply. Every day, and I do mean EVERY day MORE currency is put into the economy than the day before. There is a few ways this is done, most focus on just policy action that directly injects capital into the system BUT since the U.S. works on fractional lending that means every day countless banks across the country are "creating" new $ into existence every day via the lending cycle. This is, in theory, a good things because if the # of dollars floating around stood still, but # of people increase, that would mean less $ for each person and less to go around means less goes around, so less is done, and it creates DEFLATION and recession. To stay even, inflation is required. This is why the Fed today says it wants to get down to inflation around 2% and not 0. Inflation is good, when in balance.
But, since we have a all but constant inflation, that also means a steady devaluation of each $ "in the flow". So this last factor is that the real estate could actually stay flat in it's value BUT price goes up, due to inflation and the devaluation (purchase power) of each $ in your hand.
There is this eco-system that is intertwined, with feedback loops, that leads to the steady march of real estate prices going up over time.
So back to your population item. Even with population declining slightly, it does little to disrupt due to the cycles of replenishment, and fact of money supply. To get real and sustained deflation, population would need to meaningfully decline for a sustained measure, and in like kind money supply also get burned off at a matching rate or disproportionately quicker so to increase the purchasing power of each $. And than we have all the other details such as all resources for unit replenishment would need to stay in ample supply, labor to stay in ample supply, all this inputs in ample supply without any scarcity because again scarcity drives up value.
Yeah, it seems a really simple question but the reality ot the answer is far more detailed and interwoven than most ever think or want to think to be honest.
