I don't understand why house prices should rise. Buildings have a limited lifespan. If a modern reinforced concrete building only lasts 80 years then it should lose 1% or more of its value every year.
The supply curve is dictated by zoning mostly, but generally, it’s very easy to modify an existing house or rebuild it compared to getting approval to build a house where there wasn’t one before.
Hence, the component in least supply is land, and since more people who have more disposable income want to live in fewer areas, their competition to purchase that land drives up its price.
Home prices are not going up everywhere, not even keeping up with inflation in some places. It’s the places with many high paying jobs, or the places where those with high paying jobs like to vacation, that are going up.
Edit: In the US, also affecting the demand curve is people’s desire to live near other high earners, since where you live determines where your child goes to school. Everyone wants their child to rub shoulders with other children who have parents that are highly educated and/or earners, and so you end up with various income bands grouping up in areas around job centers, roughly approximated by how much of their future income they can give up to purchase a home in the “right” school district.
I have a house from 1960s which was modified in 2000s and it is quite funny to see the parts originally built in 1960 are in a much better shape than the ones added around 2007. Actually nothing bad happens to the old parts, and if no hurricane, flood, fire or war happens I'm quite sure it will last for the next 100 years or more.
In a non-main city the cost of a newly built house is basically the cost of the land + the cost of construction (done at a more industrial level, i.e. let's say a lot of 16 houses or a building with 30-40 flats is built with costs that are some 20-30% lower than those to re-build a single house/flat) + the margin of the builder/developer (which often is not exceeding 15 or 20%).
I will give you some real world costs for my area (Italy, Tuscany, non-main-city):
Plot/land (incidence on built surface) 500 Euro/m2
Building costs 1200-1400 Euro/m2
Projects/Taxes/permits/financial costs 500 Euro/m2
Final sale price 2800-3000 Euro/m2
Same in the nearest "main" city , Florence:
Plot/land (incidence on built surface[1][2]) 1500-2000 Euro/m2
Building (re-building) costs 1300-1500 Euro/m2
Projects/Taxes/permits/financial costs 800 Euro/m2
Final sale price 4000-6000 Euro/m2[2]
[1] largely this is about buying, (partially) demolishing and rebuilding an existing building as there are very few possibilites of a completely new building on a "virgin" land plot
[2] of course this depends a lot on the exact location
If you're paying for the housing service you wouldn't expect your rent to fall in that way. The value of the asset should be based on what someone is willing to pay, so age is in many ways irrelevant.
Where?
Any data to support this average 7 years?
(it seems to me a lot shorter time than what I would expect)