The problem is that you have to take into account that those values are biased because mortgages exist. The value of a home is exactly what a person is willing and able to pay for it.

If mortgages never existed then people would value housing much less because it's no longer $x monthly, it's the whole thing up front.

You're right that a portion comes from material cost but the cost inflates to fit the budget of the expected buyer. Without mortgages the typical suburban house would be built so that a middle-class person could afford it.

From this you can argue that mortgages are a good thing because they allow a person with less wealth to get more/better houses by leveraging future income, but the trade-off is that buyer takes on more risk, there are no low cost homes in good neighborhoods which could be reasonably bought outright, and people are more dependent on their credit rating.

Exactly. That is why the UK has had to keep "emergency" low interest rates for the last 7 years or so. If they were to rise, people wouldn't be able to afford their houses and the prices would drop. The banks assets would loose value and we would have another crisis.

You can definitely build a whole house from scratch for less than 400k. You can build it for less than $100k - http://www.zillow.com/oh/home-values/

No, most of the value in a home comes from the land underneath it. The point being made above is that the availability of credit leads to asset inflation, as more people are able to compete for the same scarce things (desirable living locations).

Mind you, credit does have a purpose - if your income and your house's value appreciate faster than the interest rate being charged to you, then you were able to gather the resources for it.

Haha. You should become a developer. You would be rich in weeks.

I have a house in the UK which has a rebuild cost of £27k. The house is valued at approx £120k, but it's the cost of the land that makes up the rest.

That's ridiculous. Here in Poland, ever since our beloved government started funding a percentage of new developer-sold apartment mortgages to young couples, the prices magically rose about 15-20%. Are you saying that the roofers and painters suddenly started demanding more money?

But debt (and banking in general) just increases your available funds from x to, say, ax+b. How the funds are then spent - wastefully or wisely - and how the markets are regulated and react, are another questions. I mean, at least in theory, mortgages could be seen as equivalent to consumers simply having a little more money.

A monolithic concrete dome that is energy-efficient, fire-proof, tornado-proof and earthquake-proof costs around $30k. But it's not your money so you don't care that the banks are subsidizing incredibly complex, unreliable, weak, stucco-wall houses that due to their unnecessary complexity, naturally end up costing several times more than a better, simpler house.

> A monolithic concrete dome that is energy-efficient, fire-proof, tornado-proof and earthquake-proof costs around $30k.

For a space smaller than a typical studio apartment. The Monolithic Dome Institute[1] quotes domes at $125/sf (including walls) for a "regular" finish. Your $30,000 dome would have a footprint of 250 sf. My house would cost at least $287,500 to replace with a dome; in contrast, it would cost about $150,000 to replace it with another wood-framed house. Concrete block costs would depend heavily on how complex the floor plan is, but would still be cheaper than a monolithic dome.

[1] http://www.monolithic.org/forms/the-residential-evaluator