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The Cost of Real Estate

How Dare She
How Dare She
“a game of monopoly where the banker puts monopoly dollars into the game… it gets reflected in the prices of properties”

Speedy Trial🧢🔦
@niftynei @PrestonPysh Cost of goods I guess? He referred to a game of monopoly where the banker puts XX monopoly dollars into the game and inherently it gets reflected in the prices of properties going up (sooner or later).
My last post talked about the three costs that “inflation” tends to be a stand in for. These were the cost of money, the cost of getting things done, and the cost of goods.
Someone replied to my post asking about inflation and real estate. It’s true, real estate isn’t a good, capital, or something to do. It’s this weird fourth category.
Or is it?
There’s actually two things I didn’t talk about at all in my last post: real estate and the supply of money.
Real Estate and the Costs
Technically Real Estate is a good. In most markets, it is a fairly monopolistic good — they’re not really building new houses in Downtown Brooklyn these days.
Real Estate is often an input into Getting Things Done.
Real Estate is by and large a *leveraged* good though. This means that the Cost of Money has a big impact on the Cost of Real Estate. Ideally you have, let’s say, $2,000 a month to spend on housing. If the cost of money is high, you wont be able to afford as much house. If you’re paying a 6-7% interest rate, the total amount of real estate you can afford is a lot less.
At 3%, 2k a month will get you 430k of house; 7% only 300k. That’s 30% less.
A low cost of money can make housing more expensive.
For the record, the local taxes also play a big part of restricting (or reducing) total housing values.
Real Estate and Supply
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.
I want to be Where the People Are
Any change in the supply of money or the cost of money *for a locality* will impact the prices of things in a locality.
More generalized price hikes in *less* localized goods will be the topic of my next installment.
If people have more money, especially young unhoused people, real estate prices will climb. If the supply drops while new money is house hunting, real estate prices will climb faster.
If people pick up and move away from a place, the supply of money they represent moves elsewhere and prices will, eventually, start to drop. Real estate prices typically go down slower than they go up.
Are Real Estate Prices a Sign of Inflation
Maybe. Let’s assume the cost of money and taxes stay the same. A growth in Real Estate prices is a measure of the growth the money supply that the local population has (or has access to via loans) has gone up.
More money and more people but the same supply means prices rise.
Is this inflation? I’d say yes.
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How Dare She
How Dare She

a “systems” “thinker”. I am a lot of fun at parties, especially if you're into institutional morbidities. on a vision quest to become your favorite writer.

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