On houses as investments for individuals and societies

This week’s book learning is the (final) part 12 of a 12 part series on The Ascent of Money by Niall Ferguson. (Parts 12345678910, 11)

Houses are the most popular asset allocation. We are so obsessed with houses that house purchasing is one of the most popular board games ever – Monopoly!

Additionally, there is a false belief that property investments are the way to get rich. Historic returns often show that an index fund gives you twice the rate of return over 20 years in both the USA and UK. Property is only a security to the person lending you money as the house cannot run away.

So, as we concluded in our investment series, Niall Ferguson warns us against investing all our money in a house. If you are a home owner and have money to invest, view real estate as you would any other investment and remember to diversify.

Interestingly, home ownership does provide many tangible benefits to an economy – home owning groups are more likely to save, get educated, and contribute to their communities. But, thanks to mortgage and housing industries that make money by pushing people into houses they can’t afford, this could lead to more harm than good.


Sketch by EB

That said, the societal power of a sense of ownership cannot be discounted. Micro finance is not the solution to the problem as most micro finance firms charge extortionate rates of interests making them similar to loan sharks. Some communities have found a way around this by giving credit to housewives. Women are much better with credit than men and our challenge will be to help women in poor communities afford houses.

Throughout the course of this series, we have touched on major building blocks of the financial system – credit, stocks, bonds, insurance, and hedging while also touching financial ideas like the welfare state and real estate. I hope it helped!