How Housing Prices Escalated
These days, even though a home is seen as a necessity, housing prices have seen a steep increase worldwide over the past decade. Even today, housing prices are predicted to increase another 10% this year. But how did we get to this point? How did such a commodity become something that many people spend much of their savings on just to get?
Firstly, demand simply outweighs supply in the current market. If a country is more favourable or popular to live in, it can increase prices. According to an article by the Harvard Gazette, in states such as Texas and Nevada where property tax rates are lower, which can cause house prices to increase due to an increase in demand. All of this demand means that markets in different countries face the risk of the housing market bubble bursting, which causes a sharp fall in prices due to no one being able to buy the houses. This in turn leads to losses in mortgage investors and to those involved in the real estate business.
In addition, the recent COVID-19 pandemic is also part of the reason for the high prices today. According to Econofact, housing construction declined due to the pandemic in early 2020. This leads to lower interest rates in housing. In addition to lower interest rates, the mortgage interest cost is less, which leads to demand reaching an all time high. This increased disparity between supply and demand was illustrated in 2021, when the rate of real house price growth in Stockton, CA of 19,2 percent and 7.9 percent in New York City although there was no housing available.
Other contributing factors such as available land or regulation can inflate the value of land, raising prices. In tightly-packed cities such as in Seoul, South Korea, where certain plots of land are allocated for use for government-led projects, the value of land goes up due to diminished supply, which in turn increases the price of real estate.
This pattern of demand and increasing prices can cause a vicious cycle called ‘financialization.’ Since many people cannot outright afford these homes, they have no choice but to take out a loan, which leads to these homes' prices being based on debt. Thus, when banks keep giving out loans, demand further rises, causing prices to escalate as well.
In conclusion, there are a myriad of factors that influence why housing has escalated in price; however, the main issue is availability. In order to avert this crisis, there should be more construction projects and less loans by banks. As the human population is currently around 7 billion and is projected to increase by a substantial amount, providing homes and averting the escalating crisis is necessary.