I am lucky that I get to think about these intriguing academic curiosities for my work. Unfortunately, I don’t have this sorted out very fully in my head. In fact, since I started working in real estate economics a year ago, I’ve been experiencing a falling sensation:
This blog is going to help me sort this stuff out and the posts will be about worth what you pay for them. If they have negative value to read, then guess I owe you a check.
This is a first post, so don’t expect much. Best I can do is try to survey the field.
Candidate explanation-clusters to the above question that need exploring:
1) The Neoliberal (The Noah Smithian): There is no mystery, prices aren’t weirdly high: prices/rents are explained by inflation, incomes, fundamentals. Prices just reflect what people are willing to pay for them… incomes and wealth are up, the cost of borrowing is down, so prices have risen. This is not even bad news; it just shows our economy is producing income and wealth. Things aren’t that bad. Please stop being a drama queen. Glory to the Empire, Diversity is our Strength!
2) The Populist Crypto-Bug (The Steve Saretskyite): Something weird has happened to interest rates and consequently asset prices (among other things) since the early 70s. Blame it on Tricky Dick. What’s up with the money supply lately? Interest rates are kept artificially low through financial repression to subsidize government and enrich politically connected groups who benefit from cheap money and ballooning asset prices. Bubbly assets are the result of novel and unsustainable monetary policy. Jerome Powell also may have killed Jeffrey Epstein with the help of Hillary.
3) The YIMBY Supply-Sider (The Matt Yglesian): Something terrible happened with zoning and housing starts/construction since the boomers, especially in the nice places near water. This resulted in soaring home prices, stagnating GDP, and rising inequality—over-zoning is at the root of most of our economic problems. Moretti and Glaeser and others inform us that if it weren’t for zoning our productivity would be so much higher that we would have fully-automated luxury gay space communism by now. Blame the Village of Euclid. It’s Time to Build for One Billion Americans! Grass is overrated, don’t touch it.
4) The NIMBY Demand-Sider (The Andy Yan Man): Globalization and MASS IMMIGRATION fundamentally changed the workings of the housing market since these absolutely never-before-seen innovations were introduced in the 80s. Focusing on British Columbia, realtors and developers seem to report that prices couldn’t be supported without exogenous inflows of cash from abroad. Contrary to the Neoliberal, fundamentals DON’T support prices as they are… check out average household income in Vancouver bro… can sub 100,000 average annual household income organically support $1.2 million average sale price in Greater Vancouver? The stats can hide this, but somehow foreign money, globalization, financialization are the cause of our housing woes. Accept the mystery. Foreigners keep moving here wanting to build things and inflict globalist aesthetic terrorism on our neighborhoods. They oughta fix this (after I sell and move somewhere cheaper and sunnier).
Small Print: These is not a complete list; I may add to it if I remember, discover, or invent other theories. None or all these points may contain none or all the truth. They’re not mutually exclusive. I am misrepresenting and oversimplifying the views of the people I have associated with these straw men.
In subsequent posts I’m going to add evidence and figure this whole thing out. Don’t worry, stay tuned.
I await your further thoughts.