I was listening to Robert Schiller on the Motley Fool podcast, and he was talking about the intrinsic value of housing. He pointed out that it is an asset in that it can be transferred for cash and an asset that pays in kind by providing a service (i.e., a place to live). However, this doesn't mean that housing will always go up. It's also a depreciating asset because the basic structure of the house--the building itself--goes down in value over time as taste changes and the house ages.
This applies most immediately to single-family houses, and he of course mentioned the once popular ranch house that most people dislike nowadays. However, I think this also applies to condos and multi-family units.
What interested me the most about this realization is how it relates to Jacob's idea of buying classics because of their higher resale value. While a 70's ranch-style house will depreciate as tastes change, classics will not. An 18th century French chateau, a Frank Lloyd Wright house in Michigan, and a loft space in Soho will hold their value much more than a McMansion in the suburbs.
This has enormous implications to anyone who wants to invest in real estate: there is often a premium on classics in the real estate market, but that premium may be more than offset by the lack of future depreciation relative to the loss someone will face on a house that was once trendy and no longer is so. This has a lot of implications for someone wanting to buy a McMansion or a condo in a brand new building.
I'd love to know everyone's thoughts on this.