Caveat emptor

I was reading excerpts from Jim Kunstler's The Long Emergency, the latest book in a life's work of writing dedicated to sounding a strident alarm about the state of the world, the way people live and, in this latest installment, our overwhelming dependency on oil. The central thesis is that we will not be able to switch quickly enough to alternative energy sources when our supply runs out, and that we are essentially destined to return to a pre-Industrial Age where we live and work locally.

One of the interesting things he noted in a small section late in the book was people's over-emphasis on real estate as the safe haven of value. He pointed up the absurdity of ascribing "intrinsic value" to houses in much the same way it's been pointed out to various gold bugs that gold, in fact, is no different from any other material, even as they spout various theories about why the yellow metal will always retain some kind of value. As people fled from the equities market but sought similar sized gains of 15 to 20% a year, and the Fed chairman Alan Greenspan dropped the cost of borrowing to nearly nil, it was almost inevitable that a bubble would be created.

Kunstler is astute in pointing out this fact -- why have houses taken on the mythic status of safe haven? I suppose it's tied up in notions of land-owning and property. People argue that having a domain, room to move and a place over which you have control. But this notion of property ownership is dependent on a stable government, a peaceful citizenry and its acceptance of the rule of law, none of which may exist in exactly the situations that would give rise to a flight to safe value havens. Gold's value in antiquity likely came from its appearance, its relative rarity scarcity is a primary component of value), its properties when made into jewelry -- remnant values that would be somewhat meaningless if the world went to hell in a handbasket. That's not even to bring in the fact that there are obviously much rarer and more useful metals these days.) In any potential breakdown of society, it's likely that a house would be more liability than asset. Kunstler points this out in energy terms -- heating and maintaining a large home would be next to impossible in an age of stifled energy production -- but also in the environment of lawlessness that would likely ensue, as you'd have to defend your abode from thieves and other invaders.

Of course, that isn't to say that we should stop owning houses -- where would we live? Again, this is something real estate proponents look to as a source of demand, but they always tend to forget that we often live in real estate that is much more than we require. What I am saying is that the concept of value in real estate is a tenuous thing, much like the value perceived in dot-com stocks and tulips in 1600s Holland, most of which value was endlessly justified by naively optimistic investors.