How Real Estate Prices Change
Real estate prices are determined through much the same mechanisms as other purchasable items. In short, real estate prices are based on both the number of people capable and interested in purchasing real estate and the pieces of real estate that can be purchased on the real estate market. Increased competition between a bigger number of people capable and interested in purchasing real estate leads to higher real estate prices, much as how a smaller number of the same leads to the opposite result. For much the same reasons, less real estate for purchase on the real estate market leads to higher real estate prices, while real estate markets replete with the same will see corresponding falls.
In practice, understanding the forces that can influence real estate prices is difficult, not least because of the sheer range in said forces. For example, most people can predict that real estate in cities will be more expensive than real estate out in rural regions because of the bigger population, but estimating the impact on local real estate prices because of state legislation is a much more challenging prospect. However, ignorance has never been a reliable shield against the relentless pressure of market forces, meaning that real estate consumers caught unaware of changing circumstances can end up suffering because of their influence on real estate prices.
The Example of Proposition 13
California Proposition 13 is an excellent example of how state-level politics can influence real estate prices in cities such as Los Angeles. Enacted in 1978, the constitutional amendment introduced a number of changes to the taxation of real estate properties in the state, including a taxation rate cap set at 1 percent of said properties’ cash values. Furthermore, the real estate properties’ cash values were set at their purchase prices, while a cap of 2 percent was set on the per annum increases used to account for inflation. Even though these changes had no direct impact on real estate prices in cities such as LA, their influence on the behavior of the real estate market has produced noticeable changes in the same.
For example, Proposition 13 has created enormous disincentive to sell real estate properties because of increased taxation as a result of their reassessed cash values. In turn, this lowers the number of properties available for purchase in the LA market, which indirectly contributes to the high real estate prices in Los Angeles. Other interesting consequences include but are not limited to a bigger proportion of renters and much longer tenure rates in LA compared to most other cities in the United States.
How Non-Local Factors Continues to Influence Los Angeles Real Estate Prices
Of course, state-level politics is not the sole source of non-local factors that can influence real estate prices. For example, part of the high prices in Los Angeles can also be attributed to both a high birth rate and a high migration rate in California, which leads to an even bigger population of people both capable and interested in purchasing real estate – who end up competing for a limited number of properties. The sheer range of non-local factors out there is one of the reasons that real estate consumers should entrust their needs to skilled and experienced real estate specialists for the best results.
Contributor, designer & admin for JohnHart Gazette.
