Housing prices have risen since a focus on home ownership with the baby boomers became more prevalent in the post war era, so a paradigm to own at any cost, triggered by political incentive to keep people feeling good by keeping interest rates too low, and lending too much money, caused people to buy more house than they could afford. This causes less spending elsewhere in the economy that leads to a downward spiral in overall growth.
Transportation technological developments have made it possible to live further away which diminishes the significance of the agricultural marketplace which was once the biggest industry in the country. Land further away from cities became more valuable, but without much planning or regulation of building, it lead to poorly envisioned suburban development. As people moved further out from economic centers in a time where agriculture diminished, time became a crucial factor in one’s life since transportation speeds did not keep up with urban sprawl. This caused a higher demand to live closer into cities which only drives prices up even higher in a housing market that is already historically and significantly higher than ever.
As time went on, building departments imposed more restriction on development which makes it more difficult to build residential units, and this only contributes to the lack of supply with higher demand than ever. This, paired with homeowners resistance to increased development and congestion in their own backyard, contributed to supporting further government restrictions on buildings that further decreases supply and increased demand. The number of residential units built today compared to the 1960s is merely a fraction of what it was. The government makes it quite difficult to build (unless you are a savvy developer).
Similar to the older trend of taking commerce jobs over agricultural ones, the current trend is to seek white collar jobs in an office over blue collar jobs as a construction worker, and this has further contributed to the lack of available craftsmen - which only increases the price for their limited services. This drives up the cost per square foot for construction, and this makes all homes cost more. With lower interest rates and the current state of ridiculously high housing prices, those who are wealthy enough to afford a house are still buying more house than they can afford, and landlords are also doing the same and passing on their costs to their tenants through higher rents. Again, this slows the economy in spending in other markets outside of housing.
If building departments would more flexible, they would be able to allow all types of development that meet certain criteria, and this would result in more housing and more stable long term housing prices. In markets like San Francisco and Seattle where restrictions are abundant, development is slowed and, consequently, housing prices rise. Developers move elsewhere to do business in areas with less barriers to development which further decreases supply in cities with extreme housing prices, and this only makes the problem worse.
After the Great Recession in 2008, mortgage lenders raised their restrictions on lending, and although it helped to put things in balance, it also made it more challenging or even impossible for new home buyers to get a loan. Without access to funding, many people are out of the market for home ownership, and only the wealthy and those willing to take a major financial risk are able to purchase homes. This leads to competition, bidding wars on home sales, and consequently, even higher home prices.
The system is broken, and I don’t think there’s anything we can do about it individually other than try not to overextend yourself, so you are not house rich and cash poor. We need money for other things. Analysts say that owning a home and renting one still results in the same financial outcome for an individual in the long term.
I think the onset of driverless cars will be the next transportation revolution that makes it possible to live even farther away from city centers and places of work. With telecommuting and work-from-home becoming more common, the idea of the city as we know it will change. Real estate for office spaces will be in lower demand which will open up space for more urban residential units. Vertical farming, GMO’s, farming mechanization, and shift away from agricultural jobs will open up even more space where farms are no longer needed since farming as we know it will become more efficient and automated. These changes being implemented with the ability to live virtually anywhere will enable the vast suburbia to grow more than ever which could balance out real estate prices between urban centers and suburban areas. Our personal interests and way of living will likely change too, so the future is is uncertain even though the direction it is moving is very certain. The changing interests in urban environments and suburbs will likely equalize at some point, and hopefully housing prices become equalized too.
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