Price increases (Housing)

An out-ward or right-ward shift in supply redu...

Demand seen as driver. Supply is trivialized, but important.

The national housing price is partially due to interest rates and the speculation, which increased the buying frenzy frequency. Another main culprit is the more widespread anti-growth/inward-growth emphasis, due to the HDC (high-density coalition) frame of reference. That has not been fully established yet by the “experts,” but it will be in a few years. Further study will show how the restriction of housing supplies has had a lot to do with causing the rapid housing price increase over the last few years. The market is in an adjustment period now, and may take years to be corrected. People were foolish to buy such highly price property. The rental market has not risen nearly as much. For new ownership, renting is a much better deal, even accounting for the equity. That should have been considered without even the inclusion of a potential drop. Of course, much of the equity is meaningless now or non-existent. It used to be that rent would be more than a mortgage, for the same property. That has been reversed for years now, in many markets. That should have been an indication not to buy.

I did my own analysis of construction costs (before I even read that study) by using a construction calculator, shown at right (RSMeans). I inputted a type of structure for 6 cities and the national mean. The results are shown below-left. The difference in construction costs are clearly much less than the difference in housing prices. Other cities can handle the new infrastructure and such without the exorbitant costs. What the hell is going on in California? Some of it is a mystery. Some of the reasons are not fully acknowledged or realized. Some of the irony is that in order to supposedly limit government expenses by controlling growth and having the new growth pay for their already existing expenses, there ends up being less revenue available for those expenses. Yes it’s true that new growth will entail more expenses, but if the volume of growth is increased, even at lower housing prices, the fiscal situation will more easily be handled. It can be analogized to a manufactured goods production line: more volume reduces costs. That’s not saying it’s like economies of scale though, but that could hold true too.

Another graph, below –left, shows how construction costs have risen slower than housing. The graph, below-right, shows an economic principle of restricting land supply—for raw land. Within that theoretical urban area, the price of developed property increases beyond the boundary too, when people move farther out, to get somewhat cheaper housing, despite the longer commute. That’s another example of problems being exacerbated by anti-market forces.

When prices are forced by higher by restricting supply, there is less money available for other items, including taxes. The higher prices and lower vacancy also lead to fewer choices being available. People tend to settle for any type of housing, rather than a type that would truly enjoy.

The demand study missed some items, particularly, to pinpoint causation, rather than other factors pushing price.
For dense areas, how often do people actually walk to stores, rather than drive? The merchandise to be bought is severely limited by what can be carried. How many of these residents have cars, and their income? VMT?

Here’s a personal example: I once lived in a house, between a Super-Kmart and a Walgreens, each 2 blocks away. I almost always drove. Most shopping needs were there. The housing prices nearby were not higher. Adding to the supply and demand analysis: there are many variables on each side which result in the price. Certain views just look at the demand side, and if the price is high, claim that it’s because “X” is demanded. The supply side (often limited) is neglected, as well as many reasons for demand.

According to this “demand only view”, then all places with high growth rates should have high housing prices. That is far from being true.
Particularly, look at Texas and Georgia.
Also, near avg prices, despite high growth, exist for Phoenix and Las Vegas; they experienced only a temporary bubble, mainly due to interest rates and speculation. LV has supply restrictions too, due to shortage of desert being sold; it’s about the 5th densest UA.


About Randall
A contrarian, not for conflict, but because many decisions are made, without considering the full impact & consequences.

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