Or to put it another way, why didnt it happen 20 years ago or 50 years ago or 100 years ago? It seems like the underlying reasons for property being so expensive have been around, well, forever? Landlords accumulate wealth, buy property, use property to generate more wealth, property stock declines and property prices go up? I realise thats a 5 year old’s view of capitolism but i dont have any background in economics. Id love to have it explained in more detail
In: Economics
Most housing crises are caused by a “bubble bursting”. In the late 90s and early 00s there was this thing called sub-prime lending that created a huge unsustainable amount of housing being purchased all over the place. The interest rates were variable with the assumption that incomes would keep going up and borrowers would be able to afford much higher payments ten years down the line. The idea of a “future me problem” is very appealing to human nature and ironically the housing situation was largely responsible for the economy ceasing to expand. People couldn’t afford the balloon payments and the bubble popped.
This time around the “bubble” was a much more dramatic result of economic forces that emerged during the pandemic. There was a dramatic redistribution of wealth that predictably caused a lot of people to think that they should invest in real estate. That sudden enormous desire to invest caused prices to go through the roof, well above what property was objectively worth but people still “bought” (mortgaged) it. Then that burst of post-pandemic capital dried up, people are stuck with properties they can’t afford but still owe so much that they can’t sell them either and other vacant properties values are based on what the properties around them have recently sold for – and don’t even get me started on property taxes.
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