Based on current real estate statistics, houses today are more expensive than they were a couple of years back. For instance, the average price of a house in 1940 was about $30,000 however, today the same house goes for about $119,000. Crazy! Right. So you are actually not imagining that the cost of owning a home has gone up, it is a reality.
So why is real estate so damn expensive? Here’s why.
#The law of supply and demand
Just like any other market, the real estate sector is not exempt from the laws of supply and demand. As populations increase, so does the demand for housing which is actually a basic human need. This demand has resulted in an increase in price of housing. The situation becomes more compounded because houses are not being built fast enough meaning that this is a problem that is likely to persist for a while.
#The complexities of zoning and development
When it comes to real estate, the price of a property is not only determined by the property itself but also by the environment in which the property stands. For instance, construction of amenities such as schools, hospitals, new electrical substations, shopping malls, just to name a few tends to impact property value. These are some of the things home owners need to be aware of always.
#The complexity of rent control
Many people believe that introduction of rent control in real estate is the answer to rising real estate costs however, economists and politicians are almost in consensus that this only serve to restrict supply and make prices even higher. Their argument is that it’s not a solution that can result in good long-term benefits to the real estate sector. Generally, rent control tends to result in rationing which often does not favor those who need it most instead it favors the most well-connected. In essence, rent control is mainly going to benefit higher income earners than the average city dweller.
#Economic inequality is a major contributor
Economic inequality can actually be considered to be the ultimate contributor to high cost of property in the real estate sector. Many cities are characterized by segregation of housing in terms of socio-economic lines. The gap between the social classes tends to be too high making it difficult Individuals in a lower class to compete with those of a higher class. Unfortunately, service providers will price their services in favor of those with a higher purchase power and this is what is plaguing the real estate sector. Houses and other properties are priced in such a way that only the economically advantaged can afford them.
In in all, a broader conversation between real estate investors, governments and economist is needed to formulate a way forward that will benefit the average citizen.