As home prices climb again in many countries, including the U.S., former banker Satyajit Das warns that the use of homes as financial assets can leave a homeowner’s wealth vulnerable to the whims of a volatile housing market. He believes that this dependency on real estate investment was a “central factor” in the financial and economic issues of the last few decades.
“Treating houses as a financial instrument leads to an undiversified investment portfolio, with 50%-80% of your assets concentrated in a single asset — your home,” Das says. “[And] price fluctuations are exacerbated by the illiquidity of the asset.”
Das points some of the blame at government subsidy of home ownership, which he believes leads homeowners to over-invest in real estate. He also notes that completed homes do not reliably produce income, profit, or employment, and constrict the movement of the labor force.