Are Fears Of Being Priced Out Of Housing Unwarranted?

June 13, 2016

Is it possible that fears of many people being completely priced out of a given city could be a bit exaggerated? According toThe New York Times and the historical record, the answer is yes.

Various articles pointing to cities like Denver, Seattle, and Portland as examples of places where housing continues to grow more expensive seemingly by the day constantly ask the question What happens when no one except the super rich can afford homes in this city? While it may seem like a pertinent question, these increases in housing prices can actually be explained by short-term variations in employment growth.

When a city’s businesses have a particularly good year and end up hiring a lot of new people, new employees end up flocking to the city. As more employees come, the housing supply dwindles and those who are arriving with a shiny new high-paying job will be able to outbid others who will have to turn to a less-attractive house. These people will outbid those who were originally looking at that house and so on and so forth until you reach the bottom where people will need to live with a roommate or parent to afford a place.

The good news is the majority of these cities that have experienced large home price increases have issued more building permits per capita and tight supply may begin to ease soon. Prices will follow suit shortly after.

It isn’t necessarily just high home prices that have people worried about being priced out; income inequality, globalization, and the threat of job loss all play a roll. It isn’t being priced out of a city that may be worrying many, but being priced out of the social hierarchy.

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