Why the focus on non-residential investment?
By Scott Sumner
I often see pundits separate investment spending into residential and non-residential categories. But I’m not sure why they do this. What makes residential investment so special?
At times there seems to be a sort of unspoken assumption that residential investment is akin to consumption, and that non-residential investment is more healthy, or virtuous, or growth-oriented. But why?
In 1991, I bought a 50% share in a handsome old brick two-family house in a Boston suburb. Over the next 26 years, I enjoyed a flow of housing consumption services from this capital asset, built back in 1923.
When the house was originally built, I imagine that lots of factories and machines and other types of non-residential investments were also being built. I wonder if the business press of 1923 thought that the non-residential investment was more useful than residential investment. In fact, my 1923 home was a much more “pro-growth, long-term investment” than New England shoe factories that become obsolete a few decades later.
If we want to boost the living standards of future Americans, housing investment is one of the surest ways of doing so.