The real estate prices around the world have been on the rise consistently for last few decades. There have been some dips intermittently but the general trend has been upward. If you start researching for the reasons behind this, you will get tons of financial, economical and geographical reasons. But none of these stories will tell you the real truth that is very apparent but yet quite difficult to grasp. I will discuss a few of the points which will make it clear that barring a few locations in the world, real estate prices will continue to increase in the future.
The basic rule of Economics states that the price of a product is the direct result of its supply and demand. When a product is short in supply but the demand is static or increasing, the price of the product will increase. Apart from a few products like Diamond, this rule applies for almost all items including real estate. The demand for real estate is increasing with each day due to the following reasons:
1) The population is ever increasing. There is no solution for population growth in the horizon as of now. The larger the population, the larger the demand for housing.
2) Mortality rate among humans has decreased considerably. Medical science has improved leaps and bounds over the last decade. It has aided in the growth of population considerably.
3) Changed lifestyle. Gone are the days when the whole family used to stay together and brothers and sisters shared rooms. We are the Gen-Y and we want our privacy. This has resulted in the increase in demand for larger more spacious apartments.
4) Increased divorce rates mean previously where two people used to share a common apartment are now having their own different living spaces. More demand.
Now on the supply part what solutions do we have and how realistic are they:
1) Decreasing the population growth. It would be great but no clear cut solutions are in the horizon. Unlike illegal activities like murder and rape, the law cannot really send a couple to the jail for having more children or sentence the newborns to death. The most they can do is impose fines but unless the people themselves make a decision, it is a non-solution.
2) Increase the density of buildings within an area. Look at some of the Chinese cities and you would see how close together the buildings are. Even if we let the unhealthy living environment part go, you can easily understand that it is a temporary solution to a much bigger problem.
3) Make more housing areas available by clearing forests and agricultural land. But this solution is obviously quite opposite of the “Go Green” philosophy we are trying to adapt.
4) Build more skyscrapers. If we cannot expand horizontally, what’s stopping us from expanding vertically, right? But the problem is there is a limit to how far up a building can go. And also such buildings can only be erected at the most stable of geographic locations.
So it should be clear by now that the increasing real estate prices are no short-term bubble which will burst soon. The facilities to buy a property are now much better than they used to be. Mortgage rates are at all time low, house loans are easier to avail and the interest rates are lower but still the prices keep increasing. The only solution that will be left in another 30 years will be probably to share room with strangers or set up colonies on other planets. Other than that, the future looks bleak.