House Prices and the Consumer Price Index

A friend moving back here in Feb 20111 from the USA has asked me the following…

A house that sold at the equivalent of EUR 150,000 in 1992 is now on the market for EUR 720,000.

The CPI has increased by 60% during this period.
He is interested in buying but has asked why is the house worth more than, say, EUR 300,000?

I cannot answer him!
Any sensible answers???


EDIT: Alright, there are thousands of discussions around this… Here’s a most recent one…


Your answer to your friend should be that he should read the entirety of the 'pin.

In the absence of considerable improvements to the area, it shouldn’t be.

Though if you want an explanation, wages have increased by more than inflation in the intervening period.
A quick glance at the numbers, (which aren’t great they don’t go back quite far enough, and they’re very split into different sectors) would suggest that wages have doubled or thereabouts. … rnings.asp