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In the book The Financial Crisis and the Free Market Cure in chapter 3 author said that investment in real estate is not really investment.

It is jobs that create houses not houses that create jobs

Author motivated it as: when we investing in factories we create new jobs which are producing some goods and after a year we have factory + goods and permanent skilled job place, but investing in real estate (homes) will create only temporary work place (real estate agents, builders etc.) which exists as long as new home is building as far as I understood.

Andrew Sasha
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  • debt tag there, because to buy a home mostly people will take mortgage, so they not investing their own money but someone's. – Andrew Sasha Oct 22 '20 at 08:22
  • I've moved this question from money.stackexchange.com because it's look like better place for such questions. – Andrew Sasha Oct 22 '20 at 08:22
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    Buying land or existing buildings is not net new investment as somebody else is selling it. Constructing a new building is investment if it going to be used: it generates value in its use, which is why rent can be charged (if the owner is using it then the "rent" is in fact an opportunity cost) – Henry Oct 22 '20 at 08:50
  • I suggest that’s confusing too many things; most obviously that the land, not the houses, constitutes real estate.

    Then, how will you define “creating” jobs? If hiring 100 builders to put up 100 houses “creates jobs” then what happens when the estate is complete, in a few years if not months?

    IMHO, the idea that keeping those workers on for my next project “creates” another 100 jobs is risible. Does anyone doubt that?

    Does whether those jobs are lost/maintained/protected/extended or what, matter?

     – Robbie Goodwin Oct 23 '20 at 20:03
  • By the way, other countries seem to have different ideas and here in the UK, almost no-one is actually interested in buying houses as bricks and mortar… rather in buying a mortgage which gives a share in a pile of bricks for long enough to make a vastly greater profit than they could from any other safe or legitimate investment. – Robbie Goodwin Oct 23 '20 at 20:08

2 Answers2

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Purchasing new homes would count as an investment. According to Blanchard et al. Macroeconomics: a European Perspective pp 568 in glossary investment is defined:

Investment (I): Purchases of new houses and apartments by people, and purchases of new capital good (machines and plants) by firms.

The source above is the leading undergraduate macroeconomics textbook, so although the definition is not rigorous as it is an undergraduate text the houses are not included just haphazardly without thought. Also note the definition does not include land as correctly stressed in Brian's comment.

However, what the author in that book you cite probably has in mind is capital investment, which is specially investment in assets that will be used as factor of production (e.g. machines, trucks, factory). However, capital investments are not defined in terms of jobs that they create. That is, even investing in fully autonomous robot that would replace worker would be capital investment. This being said when capital and labor are complementary, which is still often the case, capital investment will also create more jobs.

Additionally, in economics when we talk about real variables, e.g. real output, real consumer spending, real investment etc. we mean inflation adjusted as opposed to nominal output, nominal consumer spending and nominal investment etc. that would not be inflation adjusted. So the book you are reading also does not seem to be following economic terminology much.

1muflon1
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  • The key word in your Blanchard quote is new – Henry Oct 22 '20 at 08:54
  • @Henry yes, the Q only mentioned real estate in general and mentioned that it creates temporary work so the 'new' was assumed on my part, anyway added that more explicitly to first paragraph – 1muflon1 Oct 22 '20 at 08:56
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    Your answer implicitly covers this, but I think it might be useful to note that the title says “real estate,” which normally covers land as well as buildings - and which does not count as investment. There was another comment noting the land exception, but people might not read the comments. – Brian Romanchuk Oct 22 '20 at 11:05
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    @BrianRomanchuk thanks for the addition, you are right to stress that I edited the answer and added extra sentence to make it crystal clear to reader – 1muflon1 Oct 22 '20 at 11:07
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By the way, after a house is built (whether it was built this year or many years ago) it does provide economic value. If renters live there, then the rent they pay is counted as a service in GDP. And if the home owners live there then the same thing happens, the government estimates the 'imputed rent' and that is counted in GDP.

emeryville
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Daniel
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