Real Estate a tight, supply constrained market. The supply is constrained largely by geography — density of people and places people want to be and any one place’s proximity to that are a big factor into real estate prices.
Another big factor is the Supply of Money. We haven’t really talked about this yet, because it’s fairly complex. Money supply is very dependent on demographics and location. It’s downstream of the industry of the local population also.
The cost of money impacts it, but only so far as the underlying population can get access to money at cost.
The price of Real Estate in a big, populous town with wealthy inhabitants, where new housing is not being built is going to be high. As the population grows bigger and becomes wealthier, the price of Real Estate will continue to grow to absorb the cash flow of the underlying population.
Places like Silicon Valley and San Francisco, where the underlying population is some of the wealthiest in the world and continues to grow exponentially wealthier, is going to become more expensive first.
Places where people with a lot of money move into are going to see prices rise as the “supply of money” those people represent moves with them. For example , the Chinese Diaspora in Vancouver and the Silicon Valley exodus to Austin.
Even without large diasporas or huge infusions to the money supply, the growth of Real Estate value grows as the economic prosperity of the underlying population also grows. It is the first place that economic wealth expresses itself, as newly wealthy or newly wealthier people tend to move up as soon as their income allows. Almost (but not every) person in SF I know is waiting for their startup stock to hit the “house” level. It’s what you play the SF startup lottery for — the ability to settle permanently in the Bay Area.
