House of Cards

"A huge chunk of the money generation in the US since the thirties has been driven by house loans and the majority of the net wealth of Americans is tied up in house values.

This made sense, not so much because people would buy the house if someone defaulted on their mortgage (though they generally would) but because the house had value, beyond simple shelter, for a number of reasons.

The first is based on location. Real Estate in general, and a house in particular is valuable if it has access to good jobs, to sewage, to water, to power, to shopping and so on. To examine the truth of this, simply note that houses in the middle of nowhere almost always sell for much, much less than those near metropolitan centers. And in general, the further you are out of the city, the less real-estate costs. There are exceptions to the rule, sure, but they have specific explanations such as white flight or the hollowing out cities (which is a confirmation of the rule--when an industry moves out, the real-estate is worth less because there are fewer jobs.) So real-estate is worth something because you can make money from it (retailers and manufacturers locating near ports or railway depots are other examples.)

Housing though has another value, especially in America. Because schools are paid for from property taxes, neighbourhoods with high real-estate values tend to have well-funded schools. All other things being equal those schools perform better than schools with less money. And credentials are how the American middle and lower upper classes have attempted to pass their status down to their children. Eventual earnings track educational attainment better than anything else. So a house in a good area is one of the best things you can do for your children's future prosperity.

With housing doing all of these things it might seem to be good for it to become more expensive. Bigger retirement accounts, better schools--what's not to like?

But there is certainly a great deal to worry about, and it's because housing prices aren't just about housing, they're about money supply, education, competitiveness, retirement and much more. As the largest store of wealth for most Americans, they are one of the lynchpins of the US economy, and if they get knocked out the very foundations of the US economy will be disturbed."