i once managed the product that calculated the cost basis for your property tax bill in most US counties & states (and some international jurisdictions), and it

i once managed the product that calculated the cost basis for your property tax bill in most US counties & states (and some international jurisdictions), and it was common knowledge there that home prices were disconnected from construction costs. construction cost relative to home prices is interesting to a company like buildzoom because they're in the construction business (and finding the coming construction booms is important to them), but if you want to understand home price inflation, it's not that interesting at all. shiller, of case-shiller fame, also showed that home prices are disconnected from construction costs in his book irrational exhuberance. in a stable economy, you'd expect home prices to roughly follow GDP or inflation, not building cost. if you graphed median home prices against GDP, you'd literally see the bubble (between median home price and GDP) starting to form in the 80's and popping in 2008. why? financial engineering--we turned homes from places to live into investments. greed fueled home price inflation. and real estate investment was accessible to the average american, unlike more complex financial instruments like bonds or derivatives. in classic bubble fashion, people knew (and still know) that prices are irrational, but we all think we can make a boatload and get out before the bubble pops (again). but these are homes we're talking about, not some abstract concept like a futures contract on the production of black-eyed peas. these are not simple commodities that we can easily replace with a substitute. it's where we live. and yet, we continue to allow financiers and investors to extract wealth through higher rents (now nearing 50% for many residents of big cities), regulatory capture, and collaterized debt (the risk on which is passed to taxpayers). but "everyone else is doing it" so it's ok, right?