Supply and demand is right, but this thread has focused on the supply side and desirability of an area. What drives demand is not just the sheer number of people interested in an area, but also the resources available to those people. That is, if a particular area, say Silicon Valley, where income is huge. The willingness to pay shoots up and then you have these 2-bedroom bungalows for $500K.
In terms of where I’m living, that explains it! 
IANA Economist either, but wanted to take a stab at the comments directed toward Florida. It’s been asserted that some urban areas manage to keep cost of living prices lower due to geography. Atlanta was cited as a good example: there’s nothing but red clay in any direction for hundreds of miles outside of Atlanta, so they have room to grow and build. True, but most residents of the Atlanta 'burbs tend to commute about an hour back and forth to work each day: it’s a really spread out place. Residents of Atlanta may now chime in and blast me, since I don’t live there.
I do live in Florida. This is a long, skinny state, surrounded by ocean on three sides (thus, the term, “peninsula.” Say it with me… Pen-IN-su-la.) In the middle of the state, toward the southern half, is mostly swamp, fed by Lake Okeechobee. Point: There is not a lot of room to expand in Florida. But more than six million people live here. And we also have a decent sized immigration problem. So why are the prices so low?
Because y’all keep coming down here to pay The Mouse, that’s why. Florida’s economy is heavily dependent on tourism, which is why we do not pay state income tax. We do not pay ad valorem tax on vehicles. The property taxes are relatively reasonable (at least in the northern half of the state), given that 100% of the state lies in a hurricane zone and is therefore, floodable. Our sales tax, which varies from county to county, is also fairly reasonable, at least in relationship to the Northeast Corridor, where I understand it’s pretty high. However, taxes on hotel rooms, cruises, theme parks, restaurants, car rentals and the like are relatively high. If you come down here for vacation, you are paying my state income tax, funding my roads, my schools, and subsidizing my property taxes. So, although the demand for housing is relatively high here, the prices stay low because all of you are so willing to pay such an exhorbitant price to get a sunburn in February.
Oh, and thanks for that, btw. Please come visit us this winter so the Florida Legislature doesn’t suddenly decide to start charging me income tax.
And don’t forget your sunscreen!
:D:
That’s part of it. There’s also less competition because fewer chains (often no chains) want to open in these areas, leaving many residents to depend on relatively expensive Mom & Pop operations for basic necessities.
There’s less competition because stores in these areas are, on average, less profitable. In addition to the higher operating costs puddleglum noted, stores in these areas tend to have lower revenue per square foot and sell a less profitable mix of items. Though there is usually a higher population density in poor urban areas, the population tends to be less mobile and tends to shop within a relatively short radius of home so the local economy can’t support two large chains across the street from each other. Thus, even when there is a chain store in the area, there is little competition. Relatively wealthy, mobile areas can support multiple chains even though the population density may be lower and this tends to keep prices down.
Building codes and zoning laws have some effect. The codes require better construction and zoning laws improve the neighborhood, but not for free. For instance, I have a septic tank which works fine; but someday I’ll have to pay many thousand dollars to attach to a sewer line. It will not work any better, but it will increase the cost of housing.
One thing I have to ask is why don’t rents as a whole drop? Oh you get the occasional discount here and there but they tend to rise.
In Chicago it was reported that due to the drop in occupancy high rises were offering $1000 discount to stores, lower security… well how about LOWERING THE RENT?
Back in the 80s when I was a teen starting out I used to get bargains by finding apartments that went unrented and offering the landlords less with a 6 month lease. I almost always got it. After I was in I was such a good tenent I was only asked to leave two times after 6 months (for a higher renter) By 1990 I found I coudn’t do this. Buildings would just sit empty. Why?
How can people build buildings and let them sit empty? Are these tax write offs?
I work in Steeterville, Chicago and everyday I walk past apts that have been empty for over a year. Why no effort to rent them. If rents were lower you would rent them. I would live there.
The supply/demand and the geography points are valid, but it is also worthwhile to look at what is affected by those points.
New England through New Jersey vs The South and Southwest:
- Houses must be insulated against winter and must have more “powerful” furnaces than those farther South.
- New England has no regionally supplied petroleum, so fuel prices tend to be a bit higher. The Electric grid is massively run on oil instead of coal, causing a greater demand for a product in shorter supply, driving up the costs of electricity and heating oil. (I don’t know what the natural gas situation is in New England.)
New England through New Jersey vs The Rest of the Lower 48:
-As the oldest industrial section of the country, that region has the oldest infrastructure of roads (bounded most tightly by the most buildings). This means that the infrastructure generally needs the most repair and that any attempts to enhance (widen) highways and bridges costs more due to the corresponding higher prices of the heavily built-up surrounding land. Most of the major industrial or economic centers outside the region “grew up” with the automobile. While many of the designs in the hinterlands are pretty rotten, they were at least platted for cars and trucks, not carts and Connestogas. This eases the burden for upgrading the system.
- The age of the infrastructure includes government buildings and utilities as well as private housing. (Obviously, there are many new structures in the Northeast, but there are also many more aged structures, driving up overall maintenance costs.)
I wouldn’t be surprised if they were tax write-offs. Either that, or there aren’t any interested buyers. If I presume correctly that the neighborhood you’re talking about is in a crime-ridden area…well, that must also be a reason.
I’ve never lived in Chicago (heck, I’ve never been there), but from what I understand, there are a lot of areas which could (and should) be revitalized…has anything been done or being done?