That there is some sort of anomaly here becomes obvious when you look at other things you could buy on credit: Buying a car or anything else on credit does not help you to accumulate wealth, just the opposite. What is remarkable about housing is that by the time you paid of your mortgage, you own *more* value than you paid in, despite having paid a good chunk of interest to a bank. Few people understand why that is so. There is a very simplistic and wrong explanation many people believe, which is that the mortgage rates are fundamentally paid by the rent saved when living in your own home. Well, buying a car on credit saves you from renting a car, but that still doesn't produce wealth. In reality, buying a house with a mortgage creates wealth for two reasons: It forces people to save more money than they would have done otherwise, and the value of the house rises faster than inflation.

The first factor, forced saving, is more psychological. If you look at information about the FIRE (financial independence, retire early) movement, you'll realize that a high saving rate accumulates wealth even without including a house or a mortgage. But most people find it very difficult to save let's say 30% of their income. It is psychologically a lot easier to take out a mortgage and be forced to pay 30% of your income as monthly mortgage payments.

The really weird factor is the fact that house prices rise faster than inflation, in the USA by 2.4 times since the 1960s, and by similar amounts elsewhere. So, not only did mortgages force people to save a lot of their income, those savings also went into a highly profitable asset class, "safe as houses". That is how wealth is created: Save a lot of money, and invest it into something with a good yield. This clearly worked for the two thirds of the population that now own their houses in many developed nations.

Pretty much all information you can find about wealth creation by housing ends here. A happy story that has worked remarkably well for a large chunk of population for 8 decades. Very few people ask the next questions: Where exactly does the created wealth come from, and is this sustainable?

The answers to these question are a less happy story. If you think of it, a house being worth much more now than when the owner bought it 30 years ago is not an actual creation of wealth. The house is still the same, and the intrinsic value of the house to its owner as providing shelter is also still the same. The only thing that has changed is the market value, which depends on supply and demand. The house is worth a lot, because all over the developed world there are too few houses, and the people who don't own one yet would like to have one. Ultimately a rising market value of housing is a redistribution of money from the people who will buy a house in the future to those who already own one. Which is exactly why you can read everywhere about a generational conflict between the house owning older generations and the not-yet-house-owning younger generation.

If the price of houses doubled next year, it would be called a housing crisis, because many people who now don't own a house would never be able to afford one. If the price of houses halved next year, it would be called a housing crisis, because so many people would feel poorer that they would reduce their spending and cause a recession. There is no "good" direction into which housing prices can evolve. There are two large populations, the housing haves and the housing have-nots, and a shift in market values redistributes wealth between these two populations, without actually creating new wealth. It's a zero sum game. And right now the balance is very much to the side of the house owners. Which is politically convenient, because they are the majority, so politicians aren't likely to want a crash of house prices.

Which brings us to our second question, sustainability. If the price of houses outpaced inflation by a factor of 2 or more over the last 60 years, can it do that again? The answer is clearly: No. We are talking 30% saving rates for a 30-year mortgage already for the past. There simply aren't many more years between the time somebody buys his house and the time he retires. And extreme savings rates would not only mean a very frugal lifestyle for those families, but also a lack of consumer spending for everything else other than housing, seriously hurting the wider economy. Prices are determined by the law of supply and demand, and for a mass market product like houses, the demand is limited by what the average family can possibly spend, it can't grow forever faster than household income. And political pressure is growing everywhere, at some point governments need to step in to increase the supply of affordable housing, and that will exert a downward pressure on house prices.

The best advice for the last 80 years on how to save for retirement and accumulate wealth was to take out a mortgage and buy a house. There is no guarantee that this advice is still valid. If something can't possibly grow forever, at some point it will stop. And if you buy a house now, and in 30 years when you have paid back the mortgage the house is worth the same or less than today, you won't have accumulated much wealth. The creation of wealth by housing was an illusion, and at some point that illusion must shatter.