Which makes substantial profits for the home builders but very little in the way of more affordable housing.
The price of a barrel of oil is determined by supply and demand. As the price goes up, more production is brought online which is now economically feasible. So at $100/barrel you've got the Canadian tar sands projects which make oil for something like $80 a barrel worth of cost so the company can make $20 a barrel.
But there are still tons of wells out in west Texas that are producing oil for $20 a barrel in cost. The people that own those wells are making $80 a barrel in profits.
If housing prices are high home builders might be able to build less expensive houses but they have no incentive to. They can sell the houses they build at market rather than below market prices. It might increase the supply but that doesn't necessarily translate into reduced prices in any kind of a reasonable timeframe.
The increased housing prices are caused by "rent seeking" by wealthy landlords (think people who own hundreds of rental units for example) that want to increase the value of their property. They do this through zoning ordinances that artificially restrict zoning density and also through overuse of "historic preservation" laws. See Harvard economist Edward Glaeser's writings for more details. He very clearly demonstrates the increasing cost of land and as distinct from the cost of construction.
It is important to understand this reason, "rent seeking" in microeconomics makes for market inefficiencies. It is a means for people to enrich themselves through politics by making people pay more for rent or for buying a house instead of through actual wealth creation. The solution to the ever increasing housing prices is to reverse the "rent seeking" by fixing zoning laws so that there are not unfair zoning density restrictions and restricting the overuse of "historic landmark" laws.
Comments
Which makes substantial profits for the home builders but very little in the way of more affordable housing.
The price of a barrel of oil is determined by supply and demand. As the price goes up, more production is brought online which is now economically feasible. So at $100/barrel you've got the Canadian tar sands projects which make oil for something like $80 a barrel worth of cost so the company can make $20 a barrel.
But there are still tons of wells out in west Texas that are producing oil for $20 a barrel in cost. The people that own those wells are making $80 a barrel in profits.
If housing prices are high home builders might be able to build less expensive houses but they have no incentive to. They can sell the houses they build at market rather than below market prices. It might increase the supply but that doesn't necessarily translate into reduced prices in any kind of a reasonable timeframe.
The increased housing prices are caused by "rent seeking" by wealthy landlords (think people who own hundreds of rental units for example) that want to increase the value of their property. They do this through zoning ordinances that artificially restrict zoning density and also through overuse of "historic preservation" laws. See Harvard economist Edward Glaeser's writings for more details. He very clearly demonstrates the increasing cost of land and as distinct from the cost of construction.
It is important to understand this reason, "rent seeking" in microeconomics makes for market inefficiencies. It is a means for people to enrich themselves through politics by making people pay more for rent or for buying a house instead of through actual wealth creation. The solution to the ever increasing housing prices is to reverse the "rent seeking" by fixing zoning laws so that there are not unfair zoning density restrictions and restricting the overuse of "historic landmark" laws.