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> If you remove price, it will be something else besides price, such as a lottery, how politically connected you are, or something else. The main driver of pri
by camelite 7y ago
> If you remove price, it will be something else besides price, such as a lottery, how politically connected you are, or something else.
The main driver of price is not "demand" imagined as how much people willing to pay for a particular house but demand as how much people are capable of paying, which is mediated by access to debt. If access to debt is clamed down on across the board, then prices will fall accross the board. People will still compete on price but as a society a smaller fraction of income will be spent on housing.
- freedomben 7y agoThat is true for existing, middle class and below housing for sure. Whenever interest rates go up, we see the exact effect you are describing. it's not the whole story however. In order to increase Supply, it has to be profitable to build new homes. If building new homes is not profitable, none will be built, and the price of existing homes will be forced upward until it matches the cost of new construction. So I agree with you that access to debt is a very important factor, but I disagree that it is more important than demand when you look at the whole picture.