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WSJ say real estate not aways in inflation hedge. Actually it pretty much is.

Posted by John Reed on

‘Real Estate Isn’t Always a[n inflation] Shelter’ is the headline in a WSJ article from yesterday.
Excuse me. Real estate is not a dollar-denominated asset. ALL assets that are NOT dollar-denominated ARE inflation hedges. What is the author Carol Ryan talking about?
When inflation accelerates, as in WW II and the 1970s, it is common for the federal government to enact price controls including rent controls. NYC still has rent control left over from WW II. But Ryan manages never to mention rent control in an article about inflation other than mentioning that already existing German “government regulations cap” residential rents.
No kidding, Sherlock, they have rent controls in Europe. That is why no one writes articles about investing in both North American and European residential rental property. In London on my 1975 honeymoon, I asked a real estate agent about investing in apartment buildings there. He exploded and told me I would have to be crazy to do that—because of rent controls not to mention squatters and other European-only craziness.
No one should EVER buy apartments that might become rent controlled. If we get HYPERinflation, we will CERTAINLY get federal rent controls on residential units.
The rest of the Journal article is essentially about currently existing overbuilding in retail and office building completely nullifying inflation, which affects ALL prices by definition. There may be some truth to that, but when inflation hits a double- or triple-digit levels, EVERYONE who is not rent controlled will get a rent increase including retail and office.
Ryan never mentions the main way Americans invest in real estate: their primary residence. She speaks of single-family homes only as investments for landlords. Even there, she has to admits that stock of Homes 4 Rent and Invitation Homes (each rents detached single-family homes) beat the S&P 500 in the last year. She attributes that to a “housing shortage.”
I have been hearing there is a housing shortage my whole life, that is, since the 1950s. Elaborate land use regulations became popular in the late 1960s and made the housing shortage far worse. There have been regional housing overbuildings at times here and there since WW II, but those are temporary and none exist at present. There is NO prospect of nationwide overbuilding of homes anywhere in the United States in the foreseeable future. NONE!
My wife and youngest son and I just bought a home for him last year—mainly as an inflation hedge in my mind. We also cash-out refinanced our home for the same reason.
Ryan’s article is baloney, a common attempt by a writer to draw attention to herself by writing a “man bites dog” contrarian article. They had roaring inflation in Germany in 1921 and 1922—wheelbarrows full of currency to buy groceries. I guarantee you that no one in Germany in 1922 preferred Deutschmarks to real estate. And it is not because there was a housing shortage there that year. Serious inflation, by definition, raises the dollar value of ALL non-dollar denominated assets. Real estate is a non-dollar-denominated asset.

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