1. There are a lot of people trying to buy homes vs the supply of available homes on the market.
2. Rich people are looking for investments in real estate and buying up property to lease or rent it back out at even a higher market rate.
Edited to add:
3. Zoning restricted to keep new construction of high density housing from being built.
the word 'inflated' presumes that the price is higher than _it should be_. The underlying assumption is that homes _should_ cost less, and the current price is artificially high.
It isn't.
The price if a house is not artificially high - it is high for market driven reasons. Therefore, it is a market price. Nobody is inflating the price via some nefarious scheme.
Lol I built a house from scratch including all labor and legal aspects. Almost the whole system is designed as a nefarious scheme to grandfather in the prior generation while kicking anyone in the teeth who wants to build a place the way the voters had their own houses built 50 years ago.
Why don't we see that happening at a meaningful scale? Because the housing market is not free - it's regulated very very badly. Where developers can build, there is a huge amount of red-tape and often a crushing process of input from neighbors - neighbors who, mind you, already own their own houses, so this new development would never be used by them. And these neighbors are also strongly incentived to keep their property values as high as possible, as owning a house has very much become an investment. It's no wonder that home owners find all kinds of reasons to say no to denser developments near their homes.
And then there's the fact that huge swathes of attractive neighborhoods are zoned for single-family homes. Developers cannot even legally consider building in such areas (and I encourage you to look into this for a city near you, it's shocking). In LA, of all the land that is zoned for residential use at all, about 75% is zoned as single-family housing. Los Angeles!
I'm not a strong proponent of the "free" market, but bad regulation is a nightmare.
But it also reduces the value of existing homes and changes the environment in a negative way, which is why people that already own homes there dislike this idea.
It's easy for someone to say that someone else should be good with this for the greater good, but regulation and zoning is everywhere and most people actually want it that way.
The people that move in your 6-plexes will probably not like when they start stacking up 50 unit apartment buildings between their 6-plexes either.
Yes! Homes should be a place to live, not a financial investment. But this is exactly why neighbors would oppose denser development.
"... and changes the environment in a negative way."
Denser development is much more environmentally friendly than sprawling low density. Less acreage can be devoted to housing, and more devoted to nature (and to be clear, a lawn of grass is not "nature"). Additionally, low density sprawl makes it necessary to use a car and drive longer distances, because you are physically further away from stuff. In a high density area, public transit is more effective, or one can just simply walk around the corner to the grocery store or whatever.
Maybe they shouldn't be investments, but they are, and you can't expect people to ignore this.
I will agree that the government shouldn't incentivise this behavior, but even without the government's help they will continue to be a large portion of household wealth, like it or not.
> Denser development is much more environmentally friendly
Sorry when I said "the environment" I meant the living environment, as in: the common preference to live in a quiet low density neighborhood rather than a loud dense urban environment with all of the problems that come with it. I don't know where you live, but ignoring money and housing/rental values, if the population of your block increased 10x would you be happy about it? Even if you would be excited by that, not everyone will agree with you that stacking ourselves on top of eachother is the pinnacle of human civilization.
exactly. Anything that cost time and effort to create is an investment. To have homes not be an investment is to say it's not going to take time nor effort to make.
People can choose to ignore this reality, but it only hurts them financially.
But housing is treated almost like stocks or gold, in that they are "financial investments." People buy a house and they expect, even depend, on the house being worth more money in the future.
My point is that a house should be treated like a car or computer, not a tool for growing financial assets.
Property Taxes in CA are determined based on the time of purchase. They are only allowed to go up 2% per year, while the rise in market value increases much faster. Meaning that you are highly incentivized to hold on to property, thereby reducing supply more so than other property markets in the US.
This kinda distorts 3) as well, since you also want to protect that investment and then you get NIMBY stuff too. CA is trying to fix things by disallowing cities from blocking new construction, but it's slow going. on the legal side.
What do you suppose are the fixes?
But I see your point, I think.
Banks aren't in the habit of letting their collateral burn to a crisp.
Lots only discover insurance problems after they have signed on a home.
There's a case to be made that places like SoCal and Florida having State/Federal discounted fire or flood insurance is an obvious problem. I can understand the "we don't have a way to kick everyone out of this dangerous and potentially historic area" zone, but it ends up being a subsidy of taxes from people living in more sensible areas to pay for the predictable damages to more risky areas.
If you're rich enough to buy anything in LA in cash, you're likely rich enough to eat the loss if your house burns. If you needed a mortgage then you're constrained by the insurance companies that increasingly are pulling out of areas like this for exactly this reason.
Definitely true. Insurance rates and property tax can incentivize this as they have in places like Florida. After this, California will probably catch up.