It would be nice to live in a world where we can get the absolute best services and products at the lowest rates. Who wouldn’t want that?
But the problem is, we live in reality. And if you want the best stuff, chances are, you would have to pay a little bit extra for it. Depending on what it is, it may well turn out that you would have to pay a lot more money for it.
That’s how markets work: supply and demand. The higher the supply, the lower the demand, the lower the prices. The lower the supply, the higher the demand, the higher the prices. This applies to real estate just as it applies to widgets, nuts, bolts and movable stuff called goods.
You have to understand that the iron law of supply and demand is always in play. And this is why the whole idea of permanently lowering housing costs is problematic.
You have to understand that inflation is always an issue. And if inflation is always going to be part of the equation, then house prices and real estate in general need to keep up. Because for the longest time, investors used real estate to hedge against inflation. Every single year, the money that you deposit in the bank keeps going down in value. That’s called inflation.
If you need proof of this, just remember that as recently as the 1920’s, you can buy a very, very nice house in San Francisco for as little as $500. Think about that for a second, $500 for a very nice house in San Francisco. If you were to say that to somebody now, they probably would laugh at your face.
That’s the power of inflation because, make no mistake about it, $500 back then was a fortune. In fact, a lot of people were lucky to make half a dollar or a full dollar every single day. But thanks to inflation, our purchasing power continues to erode each passing year.
This is why there’s really no sustainable way to depress the price of housing. We can contain it, we can rationalize it, but we cannot make it go in reverse. The best we can do is to slow down its rate of appreciation so that, at the very least, wage inflation can catch up.
In other words, instead of the price of housing doubling every five years while wages double every fifteen years, we can try to at least have them track each other. That’s pretty much the best case scenario. And a lot of the policies that we come up with in our think tank go in that direction.
We are not under any delusion that we are somehow, some way, going to reduce the price of housing. That’s only possible through massive government intervention. And ultimately, that kind of policy approach often produces unintended consequences. Solid planning needs to take into account what would happen, what could happen, and what these unforeseen consequences could be in five, ten, or even fifty years.