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We've speculated around on these boards, but certainly there must be research that's been done. Real estate is the largest industry in the world, certainly someone's interested in understanding what makes it go up and down. For purposes of this question, I'm most interested in single family units. (Condos, Townhomes and SFRs) Why are prices so low in Detroit, and so high in San Francisco? Of course, in looking closer, there are parts of Detroit that are not cheap and....well, ok all of San Francisco is expensive, but there's high priced and nosebleed.
The point is...what seems to be the main driver, or correlating factor, in these aspects. I think an argument can be made for all of them, but what's the main one?
Please include a link if you can. I'd like to get a nice, actually thought out, topic on this.
Your contenders:
1. Job Creation - Does a relative economic advantage that is increasing jobs to an area make for higher prices?
2. Population Growth - If an area has more people or attracts more migrants, does that make for higher prices?
3. Loan Availability - Is home price most correlated to the availability and amount of loans available?
4. Land Scarcity - Either by zoning restrictions or by lack of buildable land, is the difficulty of building home units the main correlating factor?
5. Environmental Factors - Is the key to home pricing an area that has good or improving environmental aside from job creation such as climate, crime, education quality and public spaces?
6. Land Rights - Is the key to home pricing in an area the relative freedoms to use and continue to own the property without undue duress. (i.e. coercion to sell/use/rent, protection from volatile utility and property tax swings)
Undoubtedly, the topics are interrelated, but does one override the others? Is one the root cause and everything else follows?
To me high paying jobs is the largest driving factor. For example, metro Detroit has tons of high end jobs and suburbs that half of the people who bash Detroit couldnt even think of affording. Places like Rochester hills, Bloomfield hills, Troy, Northville, ect.
And by jobs I mean an abundance of jobs. Dozens and dozens of good employers, like in real metros. I think this is proved by small towns with single Fortune 500 company. The people who live there with the great jobs live like Kings compared to the people that don’t work for that company. They get the high pay without the high prices for housing....but in the big metros full of good jobs it’s a bidding war for the desireable properties within reasonable commuting distance. You make more money, but you’re squeezed by the market rate of housing. That’s why I think scarcity of land is second. The people with the good jobs bid up the limited land because they don’t want a commute that makes them miserable.
Some markets, like San Francisco, obviously have the jobs but other things that exacerbate it it like foreign investment, lack of land, weather, desireability, Ect. It’s basically the perfect storm for price appreciation.
Last edited by Thatsright19; 07-07-2018 at 03:26 PM..
School quality
Economic and educational attainment of neighbors
Nearby cultural and educational institutions
could probably think of many more...
I have education under environmental factors. Originally was thinking about calling it community, but basically wanted a section of non-economic aspects. This might be important draw to moving to an area. Religion might lead one to goto (or avoid) Salt Lake City, or one might go where there is a large ethnic grouping that is the same, or go for a good school district....but is that the biggest determinant in home prices?
One of the biggies (along with 100 other factors) is the cost of new construction. As new home prices go up, they pull up existing home prices.
They can also hold down prices when there is an oversupply. Builders can cut deals when they need to just to turn dirt.
Schools are in the top 3 also.
I'd put attribute that to land scarcity. Dallas has significant economic and population growth, yet there is low land scarcity in the area. The government is easy to work with. There's lots of land to choose from. Contrast this with New York City and developments are only open to a select few.
Unless you're looking at it from a true materials/labor only construct. Labor was certainly an issue in Williston, ND a few years ago. I would imagine hauling certain materials to a town 100 miles outside of Barrow, Alaska may have difficulties as well. That aspect was truly overlooked, but I'd classify it in land scarcity for the point of this conjecture.
I think there are certainly a few main factors but they’re all so interrelated it’s tough to separate them. Some markets, like Las Vegas comes to mind, don’t depend as much on local income or jobs. Only the cheapest houses are subject to those market forces, whereas many people moving to a place with great weather and world class entertainment have enough money and don’t care about the Vegas economy at all. They drive up prices by being able to pay more than most locals could afford because the city is comparatively cheaper than any other West Coast city over 2 million people.
1. Job Creation - Microeconomic Opportunity
2. Population Growth - Demand/Need
3. Loan Availability - Inflation of Price relative to other items
4. Land Scarcity - Cost
5. Environmental Factors - Non-financial location ammenities
6. Land Rights - Asset Safeguarding
Not all price changes are the same. During the .com bust, the microeconomic opportunity in the Bay Area was greatly diminished as companies went bust left and right temporarily, but it rebounded to bring new aspects later on as arguably the environmental factors were still positive from having a large population of STEM engineers. As they created new opportunities for companies, the unemployment rate began to drop again, and the population began to reverse its fall. Home prices really began to take off when companies like LinkedIn and Facebook went public and suddenly hordes of families could go take loans. Some chose to compete close to work while others went further out to buy relatively cheaper homes. In San Francisco, it remained very difficult for new construction to begin, and other motions were passed requiring things such as roofs that could handle the weight of solar panels on all new homes. Homeowner rights were augmented for investors as many discovered they could rent out homes to satisfy the growing population's need, or device money-making ideas like AirBnb to rent out places even more profitably.
All were at play, but what was the biggest contributor? After all, there are negative factors as well. Too many people can strain public works and schools, bringing down quality, or it can create economies of scale. Scarcity issues can drive up prices, but can also choke necessary development to an area. An area may provide all high paying jobs, but if there are supply constraints, inflation becomes the biggest component. If middle class wages in an area are deemed acceptable for taking 7 figure loans, then there's the inflation of economic opportunity combined with loan availability that leverages that item.
One response has already brought up the relative wealth factor. Low priced homes in an area with inequality in labor groups can have a meaningful impact. Peoria has Caterpillar for example. Appleton has Miller. Michigan has lots of spectrum throughout the state. Traverse City climbs while (parts of) Detroit or Flint fall.
Not all price increases are the same. Some may not even be good or healthy, but what causes them?
Location: Was Midvalley Oregon; Now Eastside Seattle area
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all of the above.
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