That's not really how it works. House prices are high because of very low interest rates, and even a (by historical standards) small increase would mean people could borrow less, causing prices to decrease sharply. Also we're not actually short of land except in the most densely populated countries like HK and Singapore which are exceptional for other reasons. The US has plenty of land to build on.
I'm not convinced the fixed supply of land causes the high housing prices. Here in North America all but the most developed places have a ton of undeveloped space and mostly < three story often detached housing.
Most of land isn't built on at all. Just go through west Virginia, even the stuff that is built is largely abandoned.
Yes but because land is so dear it tends to be the case that only high-end homes get built - ie expensive and low density.
The basic problem is that land & housing prices are too high relative to people's wages. I think the reason they are so high is because of government intervention in the finance & housing markets.
Exactly. High house prices are caused by a scarcity of houses. This scarcity is often due to restrictive local laws to release more land for housing and/or the permission to build up if there isn't sufficient land.
Given that land and the like is a limiting factor, the only way to get it cheaper is to develop the middle of the US (assuming it's about the US anyway), and / or to go upwards.
But that too has limits; megacities like Singapore have built upwards for decades and is still one of the most expensive places to live.
And another factor is that landlords and investors will resist oversupply. This is where China went wrong, billions have been invested in brand new cities that are effectively ghost towns; preparing for an influx of people that never came.
This isn't true at all; for one example, the main reason housing prices are high in the US is policies that exist to maximize the supply (and thus suppress the price) of low-density and particularly the extreme case of that, single-family detached, housing (which also suppresses the value of land, since the land can only be used for that purpose)
Removing those policies will decrease the cost of the minimal housing unit by increasing supply, but also increase land prices (by opening up more valuable uses) and increase the premium for single-family homes sitting on land (since they will become rarer), so making housing more affordable will simultaneously make existing houses more valuable.
All of that is true, my comment was based on US Housing trends as the context of this discussion is around the American Suburb.
Other nations have other issue, largely that they are locked in with limited amounts of land that can be repurposed for housing, thus this supply restraint is some of the cause of the price increases there. For example the nation of France is SMALLER in land area than the State of Texas yet has over 2x the number of people occupying that smaller land area
The US has TONS of underused land that is continually being developed for new suburban housing additions
While increased demand for real estate had definitely played a substantial role, housing costs could be flat or even decrease if we simply increased supply dramatically. There are a limited number of people but there is a cubic amount of space if we build up. If we had policies that encouraged always building then housing prices would collapse and we wouldn't have an affordable housing problem at all, even with foreign investors buying speculative property.
It's absolutely possible that it's artificially high right now since it has risen so much. With a big jump, you can never tell whether it's the right amount, too little, or too much.
But fundamentally, supply is short due to years of falling behind on building it after the ~2008 mortgage crisis. It's going to take a really long time to catch up on that backlog. There's a relatively low maximum percentage you can increase the supply each year.
And now that mortgage rates are higher again and there are recession fears, investors may not be as excited about putting their money into housing construction. So we will have less of a push in the next few years to close that supply gap.
So I think the prices may fall or stagnate, but I doubt the bottom will fall out of real estate.
IMHO, another factor is that the pattern of development has changed. For a long time in the US, the pattern was sprawl, which presents few barriers to building huge amounts of housing because the land is cheap and maybe even in some unincorporated area with no red tape. Now, many people prefer density (or at least not sprawl), which means the housing that's in demand is more redevelopment and infill than giant new subdivisions. That's more tedious, more expensive, and more regulated, so it will happen more slowly. So another reason why supply is limited.
most of the highly desirable areas are either fully built or land costs a fortune.
this is exactly the problem for housing prices: supply can't increase while more and more people want to live there(world population keeps growing and migration is at peak levels)
opposed to that there are countries, cities or neighbourhoods where you can buy property cheaper than the price of building it
Perhaps, but homes are built on land. We’re not making more land and it will always appreciate.
Also building materials and labor increase in price with inflation so homes will increase in absolute price even with proper regulation (which no country has ever succeeded in accomplishing).
This may not be important, but just to clarify my thoughts above: if we had unlimited land then things like maximum height regulations would no longer be a problem. In my mind it's the combination of limited land and regulation, not just the regulation, that raises house prices. (Not meaning to disagree with you, just to clarify.)
Low interest rates certainly allow you to afford a more expensive home, but inflation adjusted price per square foot isn't actually skyrocketing for most of the US outside of the west coast [0]. For example, Dallas/Fort worth and Houston metro populations, the 4th and 5th largest in the US have both grown a whopping 19% in the past decade and prices aren't skyrocketing there. But they have plenty of land surrounding their cities that can be developed to increase the housing supply.
It just seems weird to me. Why are people paying such high prices when there is farmland so close by that you could buy and use to build some condominiums, townhomes, duplexes or even single family homes.
You really need to provide data to make that assertion. Shortages of buildings are not the only reason that property prices can be high.
Properties are made up of a building and a plot of land that it's attached to. Whilst we can nake more buildings, we can't make more land, so the land in a given location is by definition going to be in a permanent state of shortage. If more poeple want to live in that location OR (the main driver of this crisis) if more money is chasing the same fixed supply, then the prices rise. The land component is the part that has become more expensive recently, not the buildings.
All property discussions won't make sense until you separate land from capital improvements (houses). Property prices will not stop climbing if you build more houses, and in fact, land prices go up if you build more houses. Rents go down per house if you build houses much faster than increasing demand, but you can't build more land.
Supply and demand is not the issue when dealing with something of inherently limited supply, such as location/land.
If you want rent to go down, absolutely build more houses. If you want land prices to go down, tax land value.
You can always build more dense housing on land that is in high demand. In fact, doing that is the most obvious and effective way to keep prices low for desirable locales. Backed up by pretty much all the economic research on the subject in the last decade.
Yes exactly. Prices are high because demand is high. So you build more housing, but the demand is still increasing and creating housing is slow. So you never catch up, the most expensive real estate is always desirable and always high price, no matter how much you build.
A common response to this is a thought experiment where you dump 100% vacancy, prices must come down. But that can't happen, building density is still slow no matter what. I'm talking in the most dense areas in the U.S. like Manhattan.
They have a different argument, namely by making sure houses are less dense, the total number of houses being built in an area is far less than what the land can support, leading to artificial scarcity in the market. The artificially limited supply then leads to high prices.
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