Current real estate boom has nothing to do with the shortage of land but with emotion and fear. Also the supply and demand curve is disturbed by unusual credit conditions: lack of free market for interest rates, socialized risk, loose standards and complacency.
If the free market for interest rates existed, as well as lending risk was not socialized (Fannie Mae) the demand for real estate would be nowhere near where it is now. Big chunk of current demand is speculative, people buying multiple properties. Why is housing demand so insatiable now ? All those people had to have a place to live before, it is not as if they were homeless and now suddenly demand to buy housing.
There is a possibility though that current real estate boom is not a bubble. Maybe it represents the early stages of massive flight from the dollar as more people realize that at some point in the future the dollar will become worthless, due to the fed trying to create "free money". (free=worthless)
Another possibility is that the increase in real estate prices is simply a reflection of a true level of inflation (the fact that CPI understates inflation is not a question of if but how much )
There is no shortage of land (except waterfront/water access)
Bubbles often create artificial shortages due to artificially high temporary demand. At one point in 1999 there was such a shortage of Commerce One stock that it's price could go up 100 dollars in one day. If there is a shortage of land in certain locales due to its popularity, immigration, population growth etc at some point expensive housing, lower quality services, congestion, taxes, pollution, traffic could make that locale so unbearable to live that immigration contracts, residents move out, uncompetitive businesses move out which causes tax rates to go up which causes even more people to move out which forces more businesses to close etc
Suddenly there are sellers everywhere and no buyers.
Once the emotion is removed( desire to profit, fear of being priced out) the pressure to buy on the part of the buyer suddenly disappears and the shortages disappear.
EXCEPTION: oceanfront and coastal properties |
