I think that Daniel is on the right track. Building regulations have something to do with it. I work as a land planning consultant. My company would not exist without the extensive land development regulations and the difficulty involved in SoCal development. California has long been ground zero for environmental efforts. We are forced to protect the wetlands, the bluffs, the canyons, the hillsides, etc. What’s there to protect in Kansas? Why would the environmentalists make a stink about a new subdivision on the outskirts of Omaha?
However, this is not new and has for some time caused prices to be more expensive in California. And things ARE getting worse, each year there are new regulations and more red tape to fight through. And we are slowly running out of land, but the end is a long time off. But I think that people buy into all of this. They believe that things are different here, that we are out of land, that EVERYONE wants to live here, and then they take action. Go to any Planning Commission or City Council hearing and listen to the NIMBYs. Once their house is built and they get moved in they don’t want any more development. They say “This place is special so let’s protect it”. It’s perfect for them. They can protest and pass initiatives forcing slow-growth development and that ends up limiting supply and forcing prices up. Who wouldn’t want fewer people moving in and higher property values? And then everyone realizes what’s happening and think that they must buy at any price if they ever want a chance to own in this paradise, then things spiral out of control.
But in the end you can’t have both. You can’t cut the supply, increase the price and expect it to last. As we see now, people will take their money and leave, and nobody will come to replace them. It has to reach equilibrium. Something has to give. The prices have to come down or the incomes have to come up.
I can’t predict the future, but it’s impossible to imagine it getting any cheaper to build here but at the same time I also can’t imagine incomes here suddenly skyrocketing. What does that mean? Most likely, sizeable price drops.
