Economic Depreciation

Economists appreciate things, like when you spend money. Yes, you. Sometimes, they depreciate things...not people, just things. But it isn’t their fault. They’re not bitter.

When something “depreciates” in value, it’s worth less than it was before. For instance, cash depreciates in value because of inflation, which is why you shouldn’t save it under your mattress or in your sock drawer. If you put it in a bank account that makes interest, that interest can hopefully help you keep up with inflation.

Specifically, “economic depreciation” usually refers to real estate situations where a property loses value because of something else happening nearby. For instance, a cute little suburb could experience economic depreciation if a new cemetery pops up in the middle of it, or if a factory that pollutes the air moves next door. Those people don’t appreciate that economic depreciation, no-siree.

To note: economic depreciation is different from accounting depreciation, which is when a company calculates how things like capital equipment will depreciate over time. Economic depreciation is when the depreciation happens because of something going on in the wider world.

For instance, houses depreciated in value when the housing bubble burst, leaving homeowners owing the banks a lot more money than the house was actually worth anymore. If they sold it, they’d still owe the banks a ton of money...because the banks got a bit greedy with subprime loans and...well, that’s a whole complicated mess-of-a-story, but you get the picture.