| >prices are set by what the market is willing to pay Land is not a normal good so it does not work that way even in theory. A simple example: Flint MI has falling demand and rising prices. In addition, land is used both for speculation and retirement savings, further inflating the price beyond just being a place to live. >Anything else is not sustainable Correct. An ever growing percentage of wealth will go to land owners and rent seeking rather than productive enterprise. The price of doing business in the Bay Area (and similar cities) will drive out industry until there is nothing but the top most classes and their house cleaners, gardeners, waiters and store clerks. A situation perfectly satisfactory for land vendors. It has happen countless times in the past but apparently were not going to let facts interfere with economic theory. >God forbid anyone make a profit? For producing something profit is great. For an exorbitant toll both in the path of job seekers, it is a net harm. |
You are right in essence, but using the wrong terminology.
Real estate, at least the kind we're discussing, residential housing, absolutely is a normal good, normal being defined as having a positive income elasticity of demand. Simply stated, when people make more money, they want more house.
https://en.wikipedia.org/wiki/Normal_good
The supply side of the equation, what you're referring to, is less straightforward. While, the long-run price elasticity is pretty high, the short-run tends to be fairly inelastic, this is due to construction having lots of high, fixed costs, and financing tends to have very long amortization schedules. Do a lot of construction in a real estate market and it might be ten years before prices start to come down, assuming demand hasn't caught up in the interim.
Most real estate markets clear. Failure of the market to clear can have many causes, the one I see happening most often is the aforementioned low price elasticity in visible parts of dense downtowns. Political action at the local level can create an economic incentive to reduce prices to meet demand.
https://en.wikipedia.org/wiki/Real_estate_economics