Why Do Housing Prices Vary from City to City?

Limited housing increases prices from a purely economic supply-and-demand standpoint.
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Whether the U.S. housing market is generally up or down, housing costs (both for renting and for buying) vary significantly from city to city. The list of factors that determines a city's housing cost, relative to other cities, is long. Surprisingly, home prices can vary greatly even between cities that are close to each other.

Geographically Close

The New York metro area exemplifies the fact that housing prices can vary widely, even among two areas that are close together. Manhattan condos cost about $600 per square foot, according to Edward L. Glaeser's article, "Housing Supply," for the National Bureau of Economic Research. This amounts to $600,000 for a modest 1,000-square-foot unit. Yet, it is common for home buyers to get a one-bedroom condo in New Brunswick, New Jersey, just 43 miles away, for around $100,000, as noted in the CNN Money "Best Places to Live" feature from 2011. Glaeser attributes the high costs in Manhattan to limited available land and regulations that discourage new home developments. In essence, there is an oversupply of people and an undersupply of desirable living space.

Geographically Distant

Perhaps more obvious is the variance in prices between distant cities. The West Coast city of San Francisco has a median home cost of $500,000, according to Glaeser. Meanwhile, CNN Money showed Minneapolis, Minnesota, a Midwestern city, with a median home price of $157,000 in 2011. The West Coast and northeastern coastal areas have among the highest housing prices, while the Midwest and Southern regions typically maintain more stable, affordable housing. Coldwell Banker manager Eric D. Brown notes a saturated market with little room to grow, high demand for newer, more expensive homes and access to the ocean among factors leading to high costs in the San Francisco Bay area. Minneapolis is more sparsely populated, making it easier for buyers to find affordable homes.

Climate Factors

A number of the factors that most significantly affect city housing costs are related to placement and climate. The East and West Coasts have more of the higher-priced cities because of the demand for luxurious vacation properties and rentals. Milder seasonal variances on the West Coast also account for its housing attractiveness. Several larger cities in Colorado have higher home prices, though, because of interest in the year-round skiing and winter sports opportunities it presents.

City Factors

Other factors that affect housing are based on city traits. Some cities simply develop more higher-priced neighborhoods than others, which leads to a higher median price point. Cities that are well-managed, clean and offer solid building and road infrastructures also positively impact prices. Availability of sports complexes, swimming pools and other community facilities also positively impact home prices in cities.

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