>In contrast, rents are a more reliable indicator of a shortage, no speculation there. Take a look at the Bay Area. One major distortion: property tax is fixed

>In contrast, rents are a more reliable indicator of a shortage, no speculation there. Take a look at the Bay Area. One major distortion: property tax is fixed at the time of purchase. So all these people who bought a house in 1980 are paying yearly taxes at the 1980 rate. This compels people to hang onto the property at all costs, what a lucrative rental cash cow. Of course this also means tax revenue via property tax is skewed heavily to be paid for by new buyers. Imagine paying property tax on a 2 million dollar house, valued at 80K. This creates (a relative) oversupply in rental houses in the area due to people who intend to hang onto their homes forever. Naturally the area is very strong in NIMBYs seeking to retain home value, plus the political environment, is people who love the environment, so they will shed no tears if no houses are built in order to protect and preserve the pristine natural empty fields of the region. That's all to say the home buyer/seller dynamics in a region indirectly influence rental prices - vis a vis whether the person deciding to "not live in this house" chooses to simply sell the home or to rent it. This creates a little mini- supply/demand factor interacting with rental prices.