When you purchase a property, there are two component parts. There is the improvement and there is the land. It is important to understand what influences the cost of improvement (the structure) sitting on the land. Environmentalism and building restrictions certainly pay a role.
There’s an old joke that asks what you call a developer. (Someone who wants to build a house in the woods or at the beach). What do you call an environmentalist? (Someone who already has a house in the woods or at the beach.) The environmental movement increases the value of land because it makes it more difficult for others to build after you, and your land is already entitled and improved.
You might be hearing about things on the news that will lead you to believe that your best investment is not in the sticks and bricks of a house. They’re wrong—it’s important to understand that commodities ebb and flow in the short term. Life isn’t lived in six month increments. We’re looking at a lifetime here. The big trends are bigger then “copper went up this week or down this week” and they’re more important. The big trend is massive consumption and an ever growing world population that is moving toward prosperity. And a more prosperous life means an increase in consumption.
So, though perhaps wealth has decreased in the short term, they’re more prosperous than they were ten years ago. When we look from a longer perspective, the global economy is booming. Raw materials cost.
In 2004, the government said that the rate of inflation was 3.3 percent. That same year, iron and steel prices went up 34 percent, roughly ten times the official inflation number. Lumber was up 17 percent, Wallboard 20 percent. Labor and energy costs have fluctuated and oil will go up—you can’t stop population-induced consumption.
If you can get a copy of a tax bill, take a look at the tax assessor’s divided up cost and value of the land and the value of the improvements or buildings that sit on the land—there’s money in improvement. Put your money in the sticks, the bricks, the bank.
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The Jason Hartman Team