The Problem with Housing

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The problem with housing is that it isn't merely a financial investment, it is a large, complicated physical object subject to the forces of Nature and Time. In our finance-dominated zeitgeist, this reality receives precious little mention: housing is presented as an asset in the financial realm: what matters is the Zillow estimate of valuation, mortgage rates, etc. 

To someone who has spent 50 years in the building / construction / renovation-repair world of "houses as physical objects," this reduction of housing to financial data points seems insidiously disconnected from reality. Houses have value because they have utility value as shelter. Once this utility value is impaired, the valuation shifts from pure finance (comparable sales, etc.) to real-world factors.

As the tide of financialized asset bubbles recedes, the "analog / real-world" valuation factors of shelter may take precedence over "real estate as an asset to park surplus cash in" and housing-bubble-speculation.

In the vast sea of finance-focused real estate coverage, articles that address the physical realties of housing are rare. These two examples are noteworthy:

New Florida Law Roils Its Condo Market Three Years After Surfside Collapse: More units are being dumped on the market because of six-figure special assessments tied to repairs for older buildings.

Homeowners say their new D.R. Horton houses are practically falling apart months after moving in.

These articles shine a light on issues that are intrinsic to buildings:
1. Every structure is prone to aging and decay.
2. Shoddy construction and low-quality materials have consequences.
3. It takes a lot of time and money to restore functionality lost to  obsolescence and/or defects.

Regarding the Florida high-rise condominiums: if the average person thinks about concrete at all, they think of its durability: look at the Roman aqueducts still standing after 2,000 years--concrete is pretty much a "forever" building material.

But modern concrete is not the same as Roman concrete. Modern concrete is strengthened with steel reinforcing bars, a.k.a. rebar. Roman concrete had no metal reinforcement. Should moisture reach rebar, the metal rusts and this corrosion expands, breaking the concrete, allowing more moisture to penetrate into the concrete and corrode more rebar.  The concrete eventually chips or flakes off, i.e. spalling.

Concrete with rebar isn't a "forever" material.  To minimize the odds of spalling, rebar is coated to resist moisture/rusting. But will this coating protect the rebar for 100 years, or 500 years? Maybe, maybe not. We don't know.

What we do know is minimizing the risks of moisture seeping into concrete and repairing spalling are expensive, especially in tall, heavy concrete structures.

In wooden structures, the enemies are 1) water, which enables dry-rot, 2) termites, for whom wood is dinner and 3) settlement or shifting of the ground beneath the building.

Wooden structures protected from dampness can last hundreds of years. The problem in modern housing is many points of moisture / seepage may be hidden inside double walls, inside attics beneath insulation, and so on. Moisture can collect on surfaces due to condensation, and roofs that look fine from the outside can leak.

Building materials and hardware vary considerably in quality and thus in durability and functionality. As a general rule, modern materials and hardware are lower quality than those available 40 or 50 years ago. 

I recently replaced two interior doors that were delaminating (the veneer was peeling off). The doors and door knobs (locksets) are 50 years old, and the locksets still work perfectly. These were standard locksets, not some super-costly high-end hardware. In my experience, the likelihood of recently manufactured standard locksets working perfectly after 50 years of use is low. In my experience, the finish wears off or corrodes and the internal parts break or wear out long before decades have passed.

As for the quality of the lumber and other materials: housing built in a hurry in eras of high demand for new housing tend to have low-quality materials because the good quality materials were already spoken for. For example, the lumber used in some homes from the late 1920s is low quality.

The same is true of housing built right after the end of World War II, when the materials available to non-war-related construction were of lower quality as the higher quality materials had been directed to the massive war effort. For example, 1 X 12 fir roof planking with fist-sized loose knots that fell out, etc.

As a general rule, however, materials and hardware were higher quality decades ago, and in many cases are no longer readily available, for example, 3/4-inch thick clear (i.e. no knots) redwood tongue-and-groove boards, straight vertical grain fir flooring, and so on. Lumber is graded by a number of quality factors at the mill, and the quality of the grades has (in my experience) declined. Construction grade, Number 2 or better, Number 1 or better, select structural--all have increased in cost while the quality has generally declined. There are exceptions, of course, but these are exceptions, not the general rule.

To save time, carpenters now use nail guns. "Sinker" nail-gun nails pull out far more easily than galvanized nails hammered by hand. Shear walls (plywood nailed to studding for structural strength) nailed off with galvanized nails are stronger than shear walls nailed off with "sinker" gun-nails. The list of reduced quality / reduced durability materials and hardware is long: particle board and OSB (oriented-strand board) have replaced plywood, oil-based paints have been replaced by water-based paints, but the oil-based paints have far more durability, and so on.

So how much durability and future maintenance are we buying when we buy a condo or house? Appraisers have devised terms/categories to describe impairments of value and utility: