It can't be this simple. I know that at a strictly mathematical level it feels like it must be true, like the "Calories In = Calories Out" model of weight loss,

It can't be this simple. I know that at a strictly mathematical level it feels like it must be true, like the "Calories In = Calories Out" model of weight loss, and yet, like CICO, feels useless as a principle. (CICO's problem: as a mathematical relationship it has to be true, but it's too dumb to be helpful: what controls calories out? all of: exercise + resting metabolism + how many calories you hold onto + how much you exhale + how much you excrete, and most of these are regulated by your desire for exercise, eating, etc. -- so while it is the value of d(weight)/dt, it tells you nothing about the first-order term that you should actually control; it's a mix of terms of different orders.) Similarly, there are clearly multiple "first-order effects" at play that are producing the final housing costs. It's not the case that there is one first-order effect, supply and demand, and then a bunch of 2nd-order corrections. I wish I could clearly see what the full equation is though. My poorly-informed guess is that the actual first-order model looks like this: "real inflation" is actually much higher than the reported numbers and is best reflected in housing prices (and healthcare prices). The reported number of inflation is much lower because certain sectors --- electronics, food, and other mass-produced consumer goods --- have had their prices heavily suppressed by exploiting global economies or controlled by policy. So lower-income workers, because they can afford smartphones and food, don't feel as poor as they actually are. But housing prices are tracking money supply, which is mostly (incredibly disproportionately) going to high-earners, like many of the tech employees here and all the economic winners of the last fifty years; the incongruity explains why everything is so expensive. At the margin, more supply just gives the rich people more places to park their money -- because they have so much money. I expect that's the best model of e.g. Toronto and NYC. Put differently: if you took tech salaries and San Francisco rents and divided them both by four, they'd feel like reasonable numbers. Everyone else is getting burned by that.