Why have housing costs rose so much in the past decades?
In: Economics
What percentage of homes have been bought as investments? Has this gone up?
I mean it hasn’t risen the same everywhere though. A friend of mine had bought a three story HUGE house in Mankato, Minnesota for like 100,000. That house can cost upwards of 300,000 in Minneapolis. Over 1,000,000 in Los Angeles.
Supply and demand def plays into it. More people wanna live in a bigger city than a small city. Especially if that city is on the coast.
One reason more recently is mortgage rates. Rates are very low so people are willing to take on more debt. It essentially creates an inverse effect where price increases with the lower rate.
Supply and demand, people not living in extended families and marrying later in life mean that there has been a surge in demand for housing which hasn’t been matched by an increase in the number of available properties.
Since no one else mentioned it yet.
Inflation, and the perceived value of your currency. Most people have the perception the price of precious metals go up or down, when it is their dollar that is increasing and decreasing.
Linked is a [gold](https://www.bullionvault.com/gold-news/files/price-of-gold.png) price chart, [copper](https://static.seekingalpha.com/uploads/2011/9/3/379295-131510367848088-Jim-Pyke.jpg), [silver](https://hubertmoolman.files.wordpress.com/2012/09/silver-long-term-chart1.png) one, and [platinum](http://files.dailywealth.com/images/NN-519532189_HWN4OKLD9W.png)
To compare, here is a [US](https://www.orreia.net/Images/U_S_HousingPriceIndexSince1900.jpg) and a [UK](http://www.fullertreacymoney.com/system/data/images/2014/January/February/14th/UK-Nationwide-Avg-House-Price-2014-02-14-chart.png) housing price chart over the decades.
You will notice they all follow the same general curves. This implies that housing supply and demand is not the primary problem, it is the value of the currency.
There are too many variables to keep this short. But fractional reserve banking likely plays a part. Banks can lend out more money than they have, they only need a ‘fraction’ of the money in their coffers to loan out a mortgage.
Is this a recipe for disaster? Yes, because it is mathematically unsustainable to do this on paper, especially when interest is charged on it but that is another topic.
In the US: it hasn’t gone up everywhere.
Inflation means that a place needs to increase in price to retain relative value, so a place that had the same price as a decade, (or more) is actually dropping in value.
But, adjusted for inflation many markets continue to grow in price. One reason for that is, people who can afford to buy homes tend to be in jobs that are seeing rising salaries, so they can spend more. Another reason is the loosening of requirements to get a loan. It’s faster and easier to get qualified, so more people will buy houses. Low interest rates means you can pay more for a house, but still have the same monthly payment as a cheaper house with higher interest rates. Compared to the 70s and 80s houses being built are bigger and held to higher standards, meaning more expensive. Aldi, there labor price has gone up for the builders.
In canada we have roughly the same amount of houses scince the 70s and more then double the population. Simple Supply and demand it would seem, but the issue gets more complicated municipal governments, provincial governments, and the federal government have made it exceedingly difficult to build houses. Soooo much more money needs to be spent. I’m a carpenter who builds all kinds of structures and I can tell you right now the amount hoops you need to jump through all need a professional in their own field who will charge a lot. Example from my last job build the house 160k, septic 30k, electric 20k, plumbing and heating 40k, this is around 250k and we haven’t gotten to windows, doors, or interior finishes, kichen, bathroom or thermal efficiently testing. But the house after its approved and its appraisal will show a value of 200k total cost almost 500k, in our area you can buy almost 3 for that price adding to the devide with population vs number of houses, so in short the issues are with the authorities allowing a bottleneck and people of all trades taking advantage of it as well as people just don’t want to build their own house anymore. You used to be able to just order a house from a store and everything would just show up diy typ thing. Here https://www.npr.org/2018/10/20/657770791/sears-is-fading-but-memories-of-its-mail-order-homes-endure
On and added not: inflation has very little to do with house prices comparatively to average salary. Mortgages went from 3-5 in our grandparents age to 10-15 mabie as high as 20 for our parents and young people now days can get up to 30 year Mortgages…… witch is insanely crazy it takes one person 3 months to put up a house themselves, 4k in tools ( if you want the best. about 60k in materials for most 4 bedroom 2 bath attached garage. Everything else is a bit of land, local administration requiring a ticked professional to do their specific service and take out permits then have it inspected.
Which country are you talking about here? It’s a nuanced question with different variables depending on the nation. However, if we look at a world wide standing, the world tends to get economically richer, therefore everything rises with inflation and becomes more expensive. However when you look at it more microscopically, individual countries tend to have things influencing it such as land prices, material costs, labour costs, demand, supply.
Adding on to the main issues of low interest rates (for US at least). Places like CA have a lot of similar building restrictions/regulations which inhibit a lot of new housing development, especially in cities, that carpenter from Canada mentioned in this post. In the San Francisco Bay Area there has been an odd coupling of poor/rich interest groups thwarting new development. Rich don’t want new buildings because they are property owners and no housing surplus means prices only go up. Poor don’t want new buildings because they’re usually building in lower income areas where development = gentrification = rising rent/evictions.
Second thing I have noticed, and this is not something based on research, so entirely an opinion on my end and nothing more… With the boom of VRBO, Airbnb, and other services that make short term rentals easier, there has been a big growth in people buying homes to just rent them out. Kind of like a long term investment. There has also been a surge in property purchases from buyers abroad. Got so bad Vancouver had to ban it, same with New Zealand from what I’ve heard.
Anyway, both points above are related to the idea of supply/demand. Many things keeping supply low so demand only grows (especially in/around major cities) and prices rise higher every year.
Inflation and demand. $100k in 1990 is equivalent to $200k today. USA population in 1990 was 250 million vs 330 million today, an 80 million difference. Yet only 36 million homes have been built since 1990.
People buy up properties and flip them for a quick profit, or buy multiple properties which reduces supply.
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