Having practically doubled in value during the past six years and going, real estate is over half way towards notching up its best decade ever. Market capitalism, the engine that moves real estate, seems to be doing its job well. But is it? Once upon a time that job was generally agreed to be to make people better off. Nowadays, this is not so clear. A number of real estate consumers backed, somehow, by an increasing number of analysts think that real estate ought to be doing something else: making people happy.
The view that real estate should be about more than just money has been widely held in Europe for decades. And now the idea of “wellness” behind real capital assets has sprouted in North America too, catering especially to the prosperous baby-boomers. Much of this draws on the upstart science of happiness, which mixes psychology with economics. Its adherents cite copious survey data, which typically shows some unsurprising results: the rich report being happier than the poor. However, a paradox emerges that requires an explanation: affluent countries, taken as a whole, have not gotten much happier as real estate has appreciated and as people have grown richer.
The science of happiness offers two explanations for the paradox. Capitalism, it notes, is adept at turning luxuries into necessities, thus bringing to the masses what the elites have always enjoyed. But the flip side is that people come to take for granted things they once coveted from afar. Homes they never thought they could possess become essentials they cannot do without. In a way, consumers are stuck on a treadmill: as they achieve a higher standard of living, they become inured to its pleasures.
Add to all this the fact that many of the things people most prize – such as an exclusive home address – are luxuries by necessity. An exclusive mansion, for instance, ceases to be so if it is provided to everyone. These “positional goods”, as they are called (a reference to the hierarchical ‘position’ within society), are in fixed supply: you can enjoy them only if others do not. The amount of money and effort required to grab them depends on how much your rivals are putting in.
All this somehow casts a doubt on the long-held dogmas of Economics. The science of Economics, especially as it applies to Capitalism, assumes that people know their own interests and are best left to mind their own business. How much they work and what they buy is their own affair. But the new science of happiness is much less willing to defer to people’s choices. In 1930 John Maynard Keynes imagined that richer societies would become more leisured, where people would have more time to enjoy the finer things in life. Yet most people still work hard to afford things they think will make them happy. They also aspire to a higher place in society and purchase status goods such as expensive homes, and in so doing they work even harder and have less leisurely time at their disposal.
On the other hand, if economic growth through consumerism does not make people happy, stagnation will hardly do the trick. Ossified societies guard positional goods even more jealously. A flourishing economy creates opportunity, which in turn spurs happiness to a certain degree. It is hard to say that most people were unhappy during the heydays of the real estate boom.
To find the real estate market or, for that matter, the entire capitalistic system at fault because they do not deliver joy as well as growth is to place too heavy a burden on them. For many to do well is not enough: they want to do better than their peers, and this competition sets anxiety very deep.
Real estate can make people well off and the consequence of it is that one can choose to be as unhappy as he wishes. To ask anymore of it would be asking too much.