Where Does Real Estate Get Its Value?

I'm in my mid-20s and am looking to buy my first residence within the next year or so. I'm deciding between a condo that I'd live in by myself or a duplex where I could rent out a unit and live in the other. Depending on my life circumstances, I've been thinking about keeping the property as a rental once I'm ready to upgrade. I'm a big believer in value investing, and I'm wondering if the aforementioned type of real estate investing falls into that category.

My biggest concern is that much of the growth we've seen in the sector over the past 50 or so years hasn't been actually driven by value growth. I think this is especially true over the past 20. From my understanding, the modern real estate market began in the 1930s with the invention of the modern 30 year mortgage with a refinancing provision. This type of mortgage probably wouldn't exist without heavy government subsidy. In my lifetime, the artificially low interest rates have also pushed up real estate prices. Zoning has also had a major impact on most desirable metros. To me, these factors explain much of the underlying appreciation in the residential real estate market.

If we could expect the next 80 years to look like the past 80, keeping my starter condo/duplex as a rental for 10 years plus would most likely turn out great. However, I'm not so certain that they will. Given the politics behind it, I don't think the 30 year fixed mortgage is going anywhere in my lifetime. However, I do think (and hope) that there will be major zoning reform sooner than later. I can also hope that central banks will have learned their lesson. I also think that if real estate prices as a function of real wages stay this high, there will be a lot of political will to make residential real estate harder to invest in than it has been. This will probably also reduce my theoretical future returns. Also birth rates domestically and abroad are declining.

I realize that it's impossible to predict the future, but I'm curious as to whether people here think I'm viewing the underlying value of residential real estate correctly? It seems like it ultimately comes down to how much someone would pay to own it as a primary residence or the cashflows that could be generated from it. Am I missing something?

submitted by /u/rowyourboat740
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source https://www.reddit.com/r/RealEstate/comments/119xrgs/where_does_real_estate_get_its_value/