Probably both a bubble and a shortage. I can't speak for California, but in Boston rents are high and mortgages to sustain the same units are much much higher.

Probably both a bubble and a shortage. I can't speak for California, but in Boston rents are high and mortgages to sustain the same units are much much higher. Regardless of the existence of a housing shortage, this is bubble economics. In a zero-speculation environment, the total cost of homeownership should be comparable to the cost of renting. Without speculation, market prices in places like Boston mean investment properties are absolutely horrid investments because they have little or no return (when you factor in the total cost of managing the property and the opportunity cost of the capital used to purchase the property). The fact that despite this most properties are rented means that landowners are banking on rents rising to meet current prices (or they aren't confident they can sell at current "market price" in a short amount of time - real estate can't be easily liquidated with a click like stocks can, plus there's tons of overhead costs involved in trying to liquidate real estate) Or to put it in other words, the high rents in boston reflect the current housing shortage and the higher home prices in boston reflect the expected continuation of the housing shortage (backed by the reality that population here is increasing faster than housing is being built)