Spoiler: No, they’re not. However much we love our homes and the dollar figures that realtors assign to them, those values are not ours until the day we sell.
But let’s start with the pizzas.
Say you run a pizzeria in your town. You sell good pizzas and make a decent living. You’re too small to be a listed company with a minute-to-minute price of your shares, but since the business is well-run and makes a profit, a buyer would be willing to pay some nonzero amount for the business, say x – the market value of the pizza joint. Since this isn’t traded daily, and no similar pizzerias have been sold recently, nobody knows what this number is. It isn’t tangible, we can’t observe it; we can guess, but nothing more.
One day a rival shows up. A sneaky entrepreneur who spotted that your pizzeria was always full, even though your pizza really wasn’t that great. He sets up shop across the street, buys an oven, hires some staff, and starts selling pizzas – perhaps even better pizzas than yours. It doesn’t take long before your restaurant isn’t as crowded, the revenues not as stellar, and the business barely breaks even.
What’s the value of your pizza business now?
It’s probably not zero (not yet, anyway), as you’re still making money and the equipment has some resale value, but it’s definitely less than x. The other guy’s business is also making some money, and the value of the business would also be some nonzero number, say y.
Did your competitor steal from you? Did your competitor’s business impose a negative externality on your business? You had x, but then this kid showed up and drained it roughly by the difference between your old value (x) and his pizza shop’s value (y); some of the customers and revenues were diluted away from you towards him. You lost something that he gained, and now you’re angry.
Is this unfair? Are you entitled to compensation because he imposed negative financial consequences on you? You did, after all, have prior commitments, a mortgage to pay and a family to support. Surely, this guy is undermining your ability to do that.
Of course you’re not entitled to any such compensation. This is fair game. You do not own your pizza-eating clients’ dollars. They no longer want your pizza – tough luck. Here’s the underappreciated piece of wisdom in a world that isn’t centrally planned: what is yours may truly be yours, but the market value of it isn’t. You’re entitled to owning the pizzeria – running it, moving it, repainting it, or closing it – but you’re not entitled to demand its value. Other people place value on assets; you only get to say yes or no to their offers, if they ever make you one.
What does this teach us about homes and houses? Are you, like our unfortunate pizza man, entitled to the market value of your house? Is it yours?
No, not quite. If someone else builds a better house next door, or sets up a noisy factory or builds an apartment building that blocks out the evening sunlight from your porch, that is none of your financial business. You “suffered a loss” compared to what you had before, but that loss isn’t anybody else’s obligation – unless you for some reason own the land on which they built the invading property.
As in so many ethical aspects of the market economy, the correct answer to this conundrum is “So what?”
You may approach your competitor and ask for alms; you may suggest that part of his revenue be diverted to you; you may try to merge your property with his, or your pizza joint with his. What you may not do is hire someone to go over there with a baseball bat and extort some payment.
What we do when we invoke the government to stop another’s construction, or petition against the building of this or that home because we don’t like them, is precisely that: hiring a criminal to crack down on others, such that we can keep a value that isn’t really ours.
You own your home, your property – net, of course, of any outstanding mortgages that a bank, residential fund, or lending society has prior claims to. You do not own the market value of that property, which is set by sellers and buyers in active markets. Your right is to sell your home, actually realize its market value, in which case the fictive dollar amount estimated for a house like yours translates into dollars in your bank account only if there are buyers who think your house is worth at least that.
Everyone routinely agrees with this. Indeed, if we didn’t, plenty of people who got on a rallying property market before it was cool (hot?) should be stripped of the equity they now hold in their homes. And nobody’s routine market behavior could be done because they would need consulting with the potential value-altering feelings of anybody else’s property. The logical conclusion of the proposition that you have some say over your neighbor’s use of his property is that nobody really owns what is theirs. What you do with what’s yours is everyone else’s business. It makes a mockery of the idea of “property” and subjects the population to the tyranny of everyone else.
Is the value of your property yours? If you sell it, yes.
You may own a stock, but you’re not entitled to decide its price. You may own a monetary asset, but you’re not entitled to determine its exchange rate against other goods and services. You may own a pizzeria, but you’re not entitled to your customers’ money if they suddenly want to eat someplace else.
Just because you own something, that doesn’t mean you own the prerogative of setting its price. That goes for homes too.