I don’t mean to imply that the laws of supply and demand aren’t working. Not at all. When people say things like “well, this is just supply and demand” they’re making the unstated assumption that we’re actually functioning in a free market and that what we’re seeing is just a result of what happens in a free market. What I’m saying is that housing is anything but a free market and saying it’s expensive here “because of supply and demand” misses the point that we have created an artificial constraint on supply. I think we’re on the same page, but I want to make this clear.
Note that in California, because of Prop 13 people’s property taxes are pegged to the price of their home when they bought it and the amount you pay to the government cannot increase by more than 2% from year to year. That means that people living next door to each other are often paying an order of magnitude more than their neighbor. So, cities don’t actually benefit much in CA from property taxes rising, especially since if you die and leave your house to your kids, that initial tax assessment continues even through death. So what you’re seeing is that there’s a huge disincentive to ever sell a home — if you’re smart, you just rent it out if you don’t want to live in it anymore. That’s part of why inventory here is really small and why we have seen the death of the “starter home.”