Ryan McMaken

This post was originally published at mises.org and reposted under a creative commons license. It’s no secret that in coastal cities — plus some interior cities like Denver — rents and home prices are up significantly since 2009. In many areas, prices are above what they were at the peak of the last housing bubble. Year-over-year rent growth hits more than 10 percent in some places, while wages, needless to say, are hardly growing so fast. Lower-income workers and younger workers are the ones hit the hardest. As a result of high housing costs, many so-called millennials are electing to simply live with their parents, and one Los Angeles study concluded that 42 percent of so-called millennials are living with their parents. Numbers were similar among metros in the northeast United States, as well. Why Housing Costs Are So High? It’s impossible to say that any one reason is responsible for most or all of the relentless rising in home prices and rents in many areas. Certainly, a major factor behind growth in home prices is asset price inflation fueled by inflationary monetary policy. As the money supply increases, certain assets will see increased demand among those who benefit from money-supply growth. These inflationary policies reward those who already own assets (i.e., current homeowners) at the expense of first-time homebuyers and renters who are locked out of homeownership by home price inflation. Not surprisingly, we’ve seen the homeownership rate fall to 50-year lows in recent years.  But there is also a much more basic reason for rising housing prices: there’s not enough supply where it’s needed most. Much of the time, high housing costs come down to a very simple equation: rising demand coupled with stagnant supply leads to higher prices. In other words, if the population (and household formation) is […]