This article rebuts Robert Shiller's claim that real home prices have not appreciated in the US. Shiller takes the position that construction productivity is improving and that existing homes are less desirable over time to make the case against housing as an investment. The value of a home, however, is also dependent upon changes in the value of the land on which the home resides. In many metropolitan areas there is a scarcity of land. This limits the development of new housing to meet the needs of an expanding population. In highly desirable metropolitan areas, land prices will rise. Increases in the value of land will cause real home prices to rise in those areas. On the other hand, land prices will fall in less desirable areas and real prices will fall in those areas. That has happened in many rust belt cities that have become less desirable as a result of economic decline and lower employment opportunities. Location is an important variable in the determination of home prices.
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