Could housing crack before inflation does?
Singling out housing makes sense. As we’ve discussed, house prices and rents are very high. Roaring demand, driven partly by demographics, is paired with meagre supply. The inventory of existing homes for sale hit an all-time low in January and has hardly recovered. Homebuilders are rushing to get fresh inventory on the market, but are constrained by shortages of labour and building materials.
Does it make sense though? Labor and building materials are just as available in suburbs as in cities but land is not.
The existence of cheaper housing in suburbs or small towns, either as new construction or existing stock, shows us that land and location drive housing costs. Scarce commodities rise in price, as any economist or business person will tell you, but for some reason, land is always left out of the conversation.
So why compare inflation and housing costs without discussing land and the scarcity of it as the factor driving both upwards? Rising prices and inflation are always linked to scarcity of something…after the Black Death, as scarce labor supply raised wages.
But all we hear about is inflation without any attention paid to what causes it. The underlying inflation we hear about constantly as well as the pressure to raise wages, higher rents or home prices, all of this ties back to scarcity and the rising cost of living. And land is the one commodity we all need, whether for farming, manufacturing or just to live on. We should perhaps act like it’s valuable, maybe even essential.