How America's Home Market Could Change For The Better If More Buyers Followed Charlie Munger's Lead

The late Charlie Munger crafted a nearly impeccable reputation for himself as an investor during a career that included working side by side with Warren Buffett at Berkshire-Hathaway. Despite his success, Munger is famous for eschewing the trappings of wealth. That especially included buying progressively larger homes. Benzinga looks at how America's real estate market would change if buyers followed Munger's lead en masse.

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Historically, Americans have moved into larger and more expensive homes as they accrue wealth. Many Americans still see living in a big house as the ultimate sign they have achieved the American dream. An entire industry of developing real estate with progressively nicer sub-divisions in every community exists to meet this demand. Charlie Munger did not buy into this philosophy of upward mobility. 

He lived in the same house for 70 years. Munger's business partner, Warren Buffett, has lived in the same house since 1958. Munger observed that big houses seemed to make his friends "less happy, not more," in a CNBC interview before his death. Imagine what would happen if most American homebuyers adopted Munger's philosophy. Cost is one of the major drivers of the housing affordability crisis. 

The U.S. Census Bureau reported that the average home in America was 2,386 square feet in 2018. In 1980, the average square footage was 1,595. That means the average square footage of American homes has increased by 150% in just under 40 years. All that extra space means extra costs for land, labor and materials. Naturally, home builders and developers pass those costs on to the consumer in the form of increased home prices.

It's an ironic way of looking at the situation, but there is a case to be made for the idea that Americans have, to some extent, run headlong into a housing crisis by chasing the "American Dream" of bigger homes. By comparison, the British Government housing survey says the average flat (apartment/home) size in London is 84 square meters, which is around 900 square feet. Do Americans really need the extra square footage?

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If American homebuyers could get their minds wrapped around Munger's philosophy of owning one, single modest home, it would change the entire landscape of the American real estate market. There would be increased density, but developers could put more homes on less land, and total costs would decrease on both sides of the transaction.

Another potential advantage is that homeowners would have extra capital available to invest and plan for their future. It would be a radical reversal of the American homebuying philosophy of the last century, but it could yield immediate benefits at all levels of the real estate industry. There could also be big advantages to Gen Z because a less expensive house payment will allow them to pay off student loans more quickly.

American investors have followed the wisdom of men like Charlie Munger and Warren Buffett for decades. Yet for some reason, they have not emulated Munger in terms of their personal real estate preferences. With that said, looking at the American dream of home ownership through Munger's lens might be the key to unlocking America's housing market.

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