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[Under construction] - Basically, high housing costs are due to restrictions on building homes - NYMBY (Not In My Back Yard). It is not due to lack of space in urban areas. If homes aren't built fast enough (supply) to meet increasing population (demand), prices go up. It is as simple as that. Demand has also been fueled by speculators (adding to the demand) and lax lending policies (also increasing demand). The recent collapse in housing prices was due to the speculative demand bubble collapsing, and easy credit going with it, thus further reducing demand. This has helped bring the prices down, but there is a limit - exising homeowners don't want to lose their invested value, and thus won't sell if the price is too low. Thus, we are probably due for a long period of flat prices.


A number of studies suggest that the delays and regulations in permits to build new homes means there isn't enough supply for the demand in some areas, driving prices up. A Boston study shows this, as well as a California study. A Cityscape article analyzes several studies and concludes that growth control measures drive up prices. However, the other side of the coin is that in some places demand was artificially driven up by speculators.

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