Why supply and demand affects housing prices

Why supply and demand affects housing prices

Written by: Abby Galaszewski                         

It has been known that a value of a home in one city could be drastically different from a home in another city. For example you can buy a $1,000,000 house in Wisconsin and get 5,440 square feet while in Los Angeles a $1,000,000 house can only get you about 1,362 square feet. However, even though there is such a large change in price per square foot, both Wisconsin and Califorina face the same issues when it comes to supply and demand in the housing market. 

Different locations have different resources available and different types of buyers, but it all circles back to supply and demand. According to Investopedia, “A low supply or housing inventory may drive prices up, which is what tends to result in bidding wars. A specific property may be in demand by multiple parties who all try to outbid each other by increasing their purchase price offer”.  Places like California have such a high demand for houses, but they don’t have the houses to fufil the demand; ultimately driving the housing prices up. In an article written by lajolla.com it states, “According to the state housing department, the state needs to build 180,000 new houses every year in order to keep up with demand”. California has been unable to attain that goal mainly because of the lack of land. Since most of California’s geography includes hills, the land that is able to be built on, has been built on. 

In Wisconsin, there is a strong demand for housing due to the amount of millennials looking for housing while there is a limited supply of houses. The value of houses in Wisconsin has raised the fastest rate in the last 15 years. According to PBS Wisconsin, “In 2021, the median price of a home in the state was $240,000, up by about $20,000 over the course of the year, according to the Wisconsin Realtors Association. Meanwhile, the supply of houses for sale in Wisconsin over the course of 2021 fell by over 12%. It was a similar story in 2020”. Similar to California the demand for housing is high, but the supply doesn’t meet the demand causing the prices to be driven up. 

All in all, supply and demand has a large impact on housing prices throughout the country. Between some states not being able to continue to meet the demand of housing because of their geographic location or states not being able to meet the demand because the number of buyers is increasing faster than the housing supply can; it all circulates back to the relationship between supply and demand. 

Works Cited

“Fast Facts: Wisconsin's rising housing costs.” PBS Wisconsin, 15 April 2022, https://pbswisconsin.org/news-item/fast-facts-wisconsins-rising-housing-costs/. Accessed 24 April 2022.

Mansa, Julius. “Housing Market Supply and Demand.” Investopedia, https://www.investopedia.com/ask/answers/040215/how-does-law-supply-and-demand-affect-housing-market.asp. Accessed 24 April 2022.

“Why are Property Values So High in California?” La Jolla, https://lajolla.com/article/why-property-values-so-high-in-california/. Accessed 24 April 2022.

“WI real estate value increases at fastest rate in 15 years.” AP News, 24 March 2022, https://apnews.com/article/business-lifestyle-wisconsin-milwaukee-8845605f94ff3a6f818cb097c839f701. Accessed 24 April 2022.