It’s a well-known fact that the price of housing in America has steadily increased over the years.
Buying a house today is an entirely different undertaking than it was several years ago.
People need to make more and more money just to be able to afford a place to live.
Although this can be a bit disheartening, there are many reasons this is the case in today’s world.
Perhaps if there were just one reason that houses were expensive, it would be easier to find solutions.
The problem is that there are so many reasons for these high prices that it is hard to control.
Why Is Housing So Expensive? (Top 15 Reasons)
1. The Lost Skill of Building
One of the main reasons housing is so expensive is that there are a limited number of people who know how to build a house.
Building a home is not an easy process, and it is a trade that not many young people have entered into.
With the money that we see in the digital world today, fewer young people are becoming builders and construction workers.
It is quite rare to hear of a younger person building their own house.
This lost skill of building and the reliance on other people to build homes for us has significantly increased the cost of homes.
If you think about years ago, many people would call in specialists to build certain parts of their home, yet they would often build quite a bit on their own.
This is really no longer the case in our modern world.
Between the equipment necessary and the permitting and applications for construction, most people don’t have what it takes to build their own home.
Unless something changes significantly and young people start to develop the idea that building a house is interesting, fun, and affordable, we won’t see these housing prices go down.
Certified and professional construction contractors have a hold on the market that most other people don’t have.
Since we must have shelter and they have the skills to provide it, the pricing will remain relatively high for the foreseeable future.
2. Price of Land
The problem with building a house or finding a place to live is that you will also need to purchase the land.
In some elite communities, there are lots of land being sold for close to one million dollars.
This means that, before a person even starts to think about the plans for their home, they will have already invested a million dollars.
The price of land continues to go up, and you will see this especially in areas where the land is in a good location.
Land near the beach or with a mountain view is automatically going to be more expensive than a small lot in a basic neighborhood.
The prices have become astronomical in some areas because people don’t put a limit on what they will pay to find the perfect location.
Many find that the price of the land is worth it as long as they have all the amenities that they are looking for in their neighborhood.
Land prices are not going to decrease anytime soon.
Finding your spot in the community and purchasing that piece of land is a major reason housing is so expensive.
If you plan to live on the ocean in California, you can expect to pay a lot of money.
When it comes to location, there are many factors that increase the price of housing.
One of those factors is the view and the amenities near the home.
In addition, people like to be relatively close to a major airport so that they can travel.
Is the local city or town safe and filled with entertainment?
How is the climate of the area?
All of these factors are going to play into the decision of where someone decides to live.
You may have all of these amenities in a house, but the home is located on the side of the highway.
This will still keep the price of the housing up because of all of the great things that are located around the home.
You have probably heard about the real estate concept of location, location, location.
This essentially means that the better spot you have decided to live, the more it will cost.
In areas of the country where the real estate prices are quite high, sometimes the only affordable housing is in a location that is going to be a bit difficult to live in.
4. Supply and Demand
Supply and demand is a concept that applies to almost anything related to business.
When the supply is low and the demand is high, the pricing is going to increase.
Of course, there is a limited amount of housing availability in any city.
When people are buying houses at a fast rate, the demand is going to increase while the supply lessens.
The total supply of homes on the market is usually much lower than the demand that is out there.
Supply and demand is a relatively simple concept, yet this concept has been around for hundreds of years.
With most people having a goal of purchasing a home at some point, the supply and demand factor is likely always going to be in place.
5. Lower Interest Rates
When interest rates are low, people can afford to purchase a large home with a large mortgage.
Many people are buying homes with only a few thousand dollars down.
The mortgage payments are so low that they can afford the monthly payments without having any financial trouble.
Of course, this means that people can charge more and more for their homes, and there will still be people who can afford to purchase them.
In years past, when people would put larger amounts of money down to purchase a home, they would have to negotiate the total price of the house much more vigorously.
In today’s world, when people know they can add $100,000 to a home’s price, and it will still only cost them a few hundred dollars per month, the mindset is completely different.
Although the mortgage rates being lower can help us achieve our homeownership goals, it puts most people in greater and greater debt.
Owning a home with a very large mortgage can be a dangerous situation when you get into financial trouble.
Overall, interest rates have been low for a long period of time, and if this trend continues, more and more people will be purchasing expensive homes, keeping the value high.
Inflation is an economic concept that will essentially make the value of a dollar lower over time.
This is what people are referring to when they say that a loaf of bread used to cost a nickel.
If you look at what people made in their jobs at the time, the loaf of bread was a nickel, chances are it will be a relatively similar proportion to the average salaries of today.
Therefore, a $100,000 house can someday be worth $200,000, but that $200,000 will likely not get you much further than the $100,000 once did.
The concept of inflation is a difficult one to understand, and it is going to have a significant impact on the price of housing.
For those who are homeowners and transferring from one home to the next, the impact of inflation probably won’t be felt all that strongly.
These people have equity in their homes that is increasing in value as time goes on.
Unfortunately, for the first-time homebuyer, the inflation concept is a difficult one to deal with.
You will have to work quite hard to make sure you are not paying an inflated price for a home and instead of getting some real value in your purchase.
7. Real Estate Developers Making Money
Real estate developers try to make money in the real estate market.
They will go into a neighborhood and purchase one of the worst-looking properties for a very low price.
The developers will then go in and fix the house up so that it becomes the nicest one on the block.
People will come in and see how great the house looks, and they will want the convenience of a house that has been completely renovated.
In the end, these homes end up bumping the prices of the other local properties up quite a bit.
Eventually, the overall price that people pay for a neighborhood is going quite a bit higher.
If you know how to do a bit of work to a home, you will be able to save some money and then be able to purchase the home and fix it up to build equity.
As long as developers still have their hand in the market, the pricing of the housing will stay quite high.
8. Raw Materials and Cost to Build
When materials start to cost more, the price of housing goes up.
Depending on different environmental and trade factors, the price of raw materials is known to fluctuate.
If you are looking at the cost of materials to build a home before anyone makes any profit, it has considerably increased in the last several years.
Companies that supply the products to build homes have to make their fair share of the profit as well.
These products that are being produced are expected to be very high quality and last for a lifetime.
This has increased the manufacturing costs and the development as well.
Essentially, the cost to build a home will probably not get cheaper anytime soon.
This makes the total number that we pay for a home considerably higher.
9. Government Help
The government subsidizes housing.
This can be a good thing for those who are looking to purchase, yet many ask whether or not this is really necessary.
Since the government steps in to help people with housing costs, then the prices can be more expensive.
People will charge more for their homes because the government is going to help them afford it.
Until the government stops stepping in to help, this issue is going to continue to be an issue.
However, it is hard for the government to be completely hands-off in the situation.
There is a large group of people who truly need the help and assistance of the government when purchasing a house.
The last thing that the government wants is to stop helping those who truly need it.
10. A Nice House Is a Status Symbol
Housing has gotten more expensive because owning a nice house has become almost a necessity for many people.
No longer is a home just a place where people can find shelter.
Years ago, there was not as much status tied to the type of home a person owned.
If you had a nice spot in a good town, it was looked at as a good thing.
Today, people are wanting to have the largest house with the biggest yard and the most modern kitchen.
To get these things, people will continue to pay more and more money to get the features that they are looking for.
In the end, this just continues to drive up the pricing of these homes.
For a basic house with no fancy features, the baseline price has also gotten higher.
People look at homes like this as a starting point where they can go in and then start fixing the home up and making it just like the other high-end homes.
The association of a nice home, meaning that you have more money than other people, is a real problem in society.
Smart people will understand that those who own a home worth $300,000 without a mortgage are likely in a much better position than some others.
Owning a $500,000 home with a $400,000 mortgage will make people look more successful, but you never really know the full story behind an individual’s financial situation.
11. People Make More Money
People make more money than they used to.
Certain careers that were always considered to be lower-paid jobs have started to increase quite a bit in salary.
This leads to the inevitability of people having more money to spend on a home.
Part of this is related to inflation, but it is not only inflation.
CEOs of companies, doctors, lawyers, IT experts all make much more money than they did ten years ago.
For a doctor earning $600,000 a year, a home that is worth two or three million dollars is certainly an investment the doctor can afford.
This has made it so that housing prices continue to go up to appeal to these professionals who have the money to spend.
The more you have to spend, the more you can afford when it comes to a premium type of home.
The market watches these trends and will have homes to appeal to these people.
12. Permitting and Environmental Studies
When it’s time to start building a home, it is not as simple as just starting to build.
There are so many permits and regulations that go into being able to build that it can sometimes take tens of thousands of dollars and years of time.
Of course, these studies will help make sure that the neighborhoods and homes stay safe; however, the costs will add up quite quickly.
This is something that builders and potential homeowners will not be able to avoid.
In fact, as environmental regulations get more involved, the pricing is likely to increase.
13. Real Estate Agents Cut
When a home is purchased or sold, real estate agents, title service companies, and lawyers will be involved in this process.
When you purchase a home for $500,000, there will likely be closing costs of $20,000 or more.
This is quite a bit of money to add in, and the fees only get higher every year.
There are fees for video photography, advertising, social media, and more in today’s real estate world.
In the years past, a wooden sign would go in the front lawn, and people in the neighborhood would drive by and tell their friends and family about the home for sale.
This is no longer the case, and it has increased the total pricing that people charge for their homes for sale.
If a home used to sell for $500,000 and the fees that a homeowner paid were $40,000, they would now ask $540,000 to make sure they recover their investment in the home.
Of course, this just leaves buyers with higher fees for the home they are looking to purchase.
With everyone wanting to get their cut of the deal, these prices are not likely to decrease anytime soon.
14. Zoning Regulations/Limited Space
Did you know that your neighborhood has likely been zoned as a residential area?
Zoning helps to keep homes in one area, while businesses and restaurants stay in another area.
There is only a certain amount of space where the zoning will be set up for homes to be built.
This decreases the supply and makes it difficult for people to build where they might want.
Zoning regulations don’t change all that much, and when they do, there is a very lengthy and involved process in place.
The next time you drive around your town, take a look at how much of the area is zoned for business and industrial.
Chances are, it makes up a good portion of the land.
This is why many homes and living spaces are now being built with extra stories.
There is not nearly as much room to build in some areas, so the building goes up instead of out and around.
Of course, not everyone is going to want to live in this way, but it will be a significant factor in why housing is more expensive.
15. Wealth Wins
The final reason housing is so expensive is that the wealthy people in the country continue to step in and purchase the homes that they want.
In neighborhoods where the average salaried person would have been able to purchase a home in the past, the wealthy have come in and offered to pay even more for the homes.
Without caring about the value or the fact that the numbers are inflated, the wealthy people will come in and pay whatever is necessary for the home that they want.
In a society where wealth is important and people work hard to obtain more and more money, this concept will not go away anytime soon.
The pricing of homes is likely to continue to increase, but there are still areas of the country where there is some affordable housing.
Buyers have to weigh their desire for the perfect home with their desire for shelter and making a financially sound decision.