|When New Yorkers and Californians (and others) - used to paying $2,000/square foot-plus for a home - moved to other parts of the US in 2020 and 2021, they discovered a new world of pricing. They felt RICH. Housing was comparatively cheap to what it was back home. They went shopping with a vengeance, buying up thousands of homes outside of their typical locations in NYC and California.
Many took with them their 'transportable' big incomes, the kind of incomes designed for $2,000/sf homes and high rents and high, big-city costs. Some moved to states where their take-home income would be even higher with lower or no state/city taxes. These areas also caught the attention of ambitious investors who have bought up tons of multi- and single-family homes as investments seeing the certainty of rising rents and returns on their investment.
In all happy stories, there are a series of negatives that are now emerging that may take some adjusting and resolving:
1. Many areas had insufficient housing stock pre-2020: now their supply of homes is acutely low. The locals - earning 'local incomes' - have great difficulty competing for the homes the border-crossers are only too happy to pay more for.
2. Landlords and sellers and developers - seeing the severe supply-demand imbalance - are pricing what the market will bear....and that has led to massive price spikes often via multiple over-bids. That's fine for those who own and sell their homes, but those seeking to buy often cannot afford this much higher pricing. And renters outside of rent-controlled areas are struggling with soaring rents.
3. All areas are reliant on 'workers'.....if they don't have a place to live, those workers cannot survive. That can lead to moves out of state and growing homelessness. And crime.
4. The wealthy are wealthier than ever, but they represent a very small percentage of society. Only 5% of US households are worth more than $1 million. 50% are worth below $500,000. Catering exclusively to the wealthy can run out of steam at some point.
5. Many areas' infrastructure - schools, roads, services, hospitals, etc - were not built for this surging demand. Costs to maintain and build are rising....as are the taxes needed to pay for this.
Much of our current home inflation is being fueled by new audiences for a lower supply. And with housing representing a big chunk of inflation figures, we should expect this problem to persist for a while.