Based on some stuff I have seen on the internet there seems to be some confusion here.
First, negative real rates of return are not odd or some sort of fear inducing perversion. Indeed, they are normal. Positive real rates of return are an oddity created by population pressure, social relationships and/or technology.
However, if its just you on a desert island and you have to bury food in the ground for safe keeping chances are you will dig up less food than you bury. In general investing only makes sense when there is seasonality, which is why tropical animals don’t do it.
And, animals that do invest always take a loss even if they invest in the form of fat stores. However, because the marginal product of labor is vastly different between the spring and the winter it is worth it in utility terms even if the material return is negative.
That humans don’t always take a loss is why the world we live in is so vastly different. Our world changes over time because we can use our brains to think of ways to get more out than we put in. However, this is a special case and should not be taken as some basic property of the world. Its just not.
Second, in particular if your story is that America put too much into housing then your story is that America is “overbuilt” which means that the capital stock should fall, which means that on average people shouldn’t be willing to pay you for capital.
Now, because there are different types of capital you could potential just say housing capital has a negative real return but some other capital has a positive real return.
Okay that’s fine.
But, real interest rates weren’t that high when people were plowing bunches of resources into housing. Now, they have to plow all those resources into non-housing AND the wealth effect of the collapse in housing prices means that people will try to invest even more. So, you have tons of resources flooded towards non-housing capital.
Its not unrealistic for this to drive the risk-free return negative. The human story is that all the guaranteed projects are taken. So, now you have to invest in a risky project.
If you don’t want risk then essentially what you have to do is invest in a risky project and then buy insurance against failure. However, because this requires that someone else take on real risk (no non-risky projects left) they have to be compensated. Your compensation of them drives the risk-free return negative.
This is completely natural.
I actually don’t think the real return to housing is negative, but that instead because structures are attached to the ground it is difficult to use them as collateral when nominal land prices are falling
Nominal land prices are still falling in many parts of America and have been for going on 7 years.
I heard a story once from guy whose great grandfather bought land in Florida during the boom in the 20s. It did not return to its nominal boom price until the 80s. That’s a long time.