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Why Have Housing Prices Risen?

In 1950, the average price of a house was seven-thousand, three-hundred and fifty four dollars. This is rather shockingly inexpensive compared to housing prices in the modern day. By 2000, this price had risen to one-hundred and nineteen-thousand six-hundred dollars. The rise in housing prices has been both dramatic and puzzling. What could have caused the price of a house to go up so high?

In general, prices have gone up in the past half century. The price of food and medical care have all risen. Inflation is one explanation. Inflation is when there is a rise in prices with a fall in purchasing power. In other words, prices haven’t really risen. Rather, the value of a dollar has fallen. Inflation occurred in the 1970’s as a result of the Federal Reserve encouraging an excessive growth in the money supply in the mistaken belief that this would curb unemployment. For some reason, the US Government believed that encouraging inflation would reduce unemployment. These beliefs were quite faulty and did no such thing.

Instead, inflation caused prices to go up precipitously. The Oil Embargo during this period also caused oil prices to rise which increased the price of shipping. The Federal Reserve, upon realizing their error, rapidly changed course and raised interest rates to a level once considered usurious. The rise in interest rates negatively impacted the car and housing industries, which are industries who rely on interest.

However, this all occurred in the 1970’s, which has been around forty years ago. The United States economy should have long ago recovered from this calamity. A chart from Business Insider shows inflation rates in the 2000’s yet notes that they “have no conclusion to draw from it.” My first instinct was to blame the Great Recession of 2008, yet the rise in prices first began long before then so that can not be the cause.

Supply and demand could be a cause of the rise of housing prices according to one argument. Land can not be produced so the supply is fixed. As the population increases, demand for land increases. This causes the value of land to go up. This explanation also explains why apartment rents have risen. More people means there’s increasing demand for habitation. Increasing demand leads to higher prices. Add to that the simple fact that land is not increasing and, therefore, supply can not increase we are seeing a rapid increase in prices. Combined with inflation, which seems to have no clear cause, we have the reason behind the dramatic rise in the price of living.






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