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Prices reflect scarcity
Prices and rents have to rise to unbearable levels to force people out
Prices reflect scarcity. When there isn't enough housing to go around, prices and rents have to rise to unbearable levels to force people to leave, matching those who remain with the limited supply. Kevin Erdmann, November 2022.
The apparent unsustainability of high home prices has been a central concern in housing policy debates for the past couple of decades. Prices are unsustainably high. Lenders, corporate investors, the Federal Reserve, and a number of other entities frequently have been blamed for this condition. However, it is constrained urban supply that causes home prices to be unsustainably high, because prices must be unsustainably high in order to induce existing residents to give up, choose to be displaced to relieve their financial burdens, and move to other cities.
He notes that when housing is scarce, it's lower-income residents who suffer the most.
In cities where regulations do not constrain the addition of new housing developments, all residents are able to trade up because there are more options. Higher income families can move to new and more expensive homes, which opens up the market of older homes for families with lower incomes. The result is more available affordable housing.
But when the production of new units is constrained, the existing stock of homes is claimed by residents with higher incomes. As a consequence, lower-income residents must either accept higher rents or move to more affordable metropolitan areas.