The Housing Market's Problem is Speculation, Not Supply

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When will the bubble burst? Well, it looks like it already has. Rising interest rates have started to impact the market and prices are declining.

In 2009, something curious was going on with the U.S. housing supply. That year, the Ohio state senate established the Cuyahoga Land Bank—a private, non-profit, government-purposed entity designed to strategically acquire run-down properties and return them to productive use. But when it was first established, the Land Bank found itself not restoring properties, but

them. The process became known as"burying the dead" and each demolished property cost the bank around $7,500., Wells Fargo, and J.P. Morgan Chase handed over foreclosed properties they had on their books and could not sell to the Land Bank for demolition. Apart from getting rid of the derelict properties, it was hoped that the demolitions would firm up the price of housing, which at the time was in steep decline.

Judging by the analysis of many housing experts in the lead-up to the financial crisis, it made no sense that the Land Bank ended up with so many unsold properties. At height of the property boom that led to the 2008 financial crisis, news outlets and financial analysts across the country—indeed, across the world—were telling anyone who would listen that the spiraling prices and frantic home-building boom was a response to a supply shortage in the market.

But if the increase in housing prices in the run-up to 2008 were driven by a lack of housing supply, why did prices suddenly crash? And why, in 2009, were states like Ohio establishing Land Banks that would demolish properties that could not be sold? These questions were never answered because they were never asked. After the housing market collapsed, financial markets went into meltdown and the economy fell into deep recession.

Does this sound familiar? It is precisely where we are today. Once again, housing prices have increased far past any fair value metric. Inflation-adjusted house prices are

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