The idea of demand and supply seems to be an easy fix to this problem. If more houses are built, that should decrease the price, allowing more people to own homes. In Britain, similar to Silicon Valley and the US as whole, house prices have risen 161% since 1996, and it’s a trend that continues today. Even more concerning, a growing number of millennials and younger people don’t own homes — only 37 percent of people aged 25 to 34 owned homes, versus 45% for Gen X and Baby Boomers.
But many economists are beginning to believe that the reasons for the low home ownership rates don’t have to do with supply. Instead, they believe that global financial markets are the cause of the high prices. An analysis of the relationship between houses built and their prices reveals that adding to the housing significantly in Britain (a 9% increase) would have still caused a price increase of 134%, meaning that the commonly used statistic of a 1% increase in housing leading to a 2% decrease in prices is simply incorrect.
Economists are beginning to view houses as a financial asset, meaning they see a house as producing implicit income, or the savings associated with not paying monthly rent. The savings in rent have increased why real interest rates have decreased, leading to the price disparities. Additionally, mortgages, often funded by capital from other countries, have contributed to the ability to own homes.
Some areas, like San Francisco, could benefit from more supply purely because the cause of the housing crisis is a specific lack of access to housing. But in other areas, even taxation on buy-to-let mortgages and other financial plans that make it more difficult to own a house do little to prevent increased prices. Some predict that as attitudes shift away from home owning as a staple of adulthood, prices would shift back down, solving the problem on its own.
Sources:
x
I really like this post as it is a relevant problem in the Bay Area, cheap housing. I like how you took the economic stance and compared the housing in Britain to show a different perspective. I think you can expand on the relationship between building the houses, selling the houses and the time of the market affect the supply and demand of housing. For example, is it more expensive to sell or buy during the summer or during the winter due to other outside issues and such.
ReplyDeleteGreat post Emma! I found it interesting how the increase in housing costs is a worldwide issue and that many people have tried to increase the supply of housing and there are still increases in housing costs. I would be curious to know if the statistics you used accounted for the inflation rate of the years monitored to get those numbers. I think this would help paint a clearer picture of whether or not the increase in housing costs is proportional to the increasing inflation rate that the world is currently enduring.
ReplyDelete