Your list of drivers of property values is missing the single most important factor:
• how much can one borrow?
Mortgages drive house prices so long as demand outstrips supply: which it always does in desirable places. Demand can always increase in a healthy city - I want to have multiple houses in different parts of the city and I could even AirBnB them out to defray costs or make a profit.
I live in Christchurch, where we had a lot of houses selling at below ½-price for a while because the bank rules forbade giving mortgages on those houses. This was after our 2010 earthquake and banks would not lend on uninsurable houses. The houses were often safe and liveable but uninsurable due to fine print (e.g. require even floors <50mm drop across entire footprint). They were often economically fixable, but to fix them needed money or a mortgage! There are still "as-is" uninsurable houses on the market - the price discrepancy isn't because of demand per se but because of mortgage/insurance restrictions - although the pricing gap has significantly narrowed (flippers and cash-buyers create enough demand for the very few as-is properties that now go on the market). I bought a spare as-is property and there's reasons not to sell it (even though I can't insure against say fire).
Christchurch zoning rules were relaxed for a while plus our government was committed to more housing so Christchurch now has many more houses than a decade ago. House prices are going up even though you can effectively only get variable mortgages in New Zealand at 7%. We have more house supply but demand is outpacing that because we also have high immigration (30% of NZ population was born overseas and we still encourage immigration).
As an individual buying a house the market dynamic is visible - I borrowed as much as I possibly could to buy the best place I could afford for my home. Bank lending rules drove my pricing. The "market" price for the house did not set my price (low competition blind deadline bid - I could not know what others bid and a price could not be accurately calculated for my property). Market price is set by competition between buyers - most buyers are borrowing as much as they can.
The economically worst part is that it is a zero-sum game with everybody competing for how much money they can give to banks for interest payments. We all lose.
The graph of sold house prices in a city looks strange - a severe cut-off just below the median price. Investigate the underlying cause for that and everything will be revealed?
> We have more house supply but demand is outpacing that because we also have high immigration (30% of NZ population was born overseas and we still encourage immigration).
This is a huge part of it, as is anything that drives housing demand (for example, as more people end up divorced, more housing is needed).
And most people go to the bank and ask how much house they can buy (based on what monthly payment they can stomach), and then go looking for the best they can get for that.
But there is another floor even without banks and mortgages; the cost to build new housing. If the minimum viable house is $250,000 to build (assuming minor builder's profit, etc) than you're going to be hard pressed to find new housing less than that.
> there is another floor; the cost to build new housing
Mostly irrelevant in an older city so long as there is a large number of older less-desirable houses in the market. And new houses become old houses in 2-3 decades.
Only the people that can afford a new home need to buy a new one.
Building prices do drag up prices, but I don't believe they set a floor unless most everything available is greenfield.
But if you're densifying you're often knocking down those older homes. And so the only way to keep the older homes is to have newer homes being built somewhere - which fights against density.
• how much can one borrow?
Mortgages drive house prices so long as demand outstrips supply: which it always does in desirable places. Demand can always increase in a healthy city - I want to have multiple houses in different parts of the city and I could even AirBnB them out to defray costs or make a profit.
I live in Christchurch, where we had a lot of houses selling at below ½-price for a while because the bank rules forbade giving mortgages on those houses. This was after our 2010 earthquake and banks would not lend on uninsurable houses. The houses were often safe and liveable but uninsurable due to fine print (e.g. require even floors <50mm drop across entire footprint). They were often economically fixable, but to fix them needed money or a mortgage! There are still "as-is" uninsurable houses on the market - the price discrepancy isn't because of demand per se but because of mortgage/insurance restrictions - although the pricing gap has significantly narrowed (flippers and cash-buyers create enough demand for the very few as-is properties that now go on the market). I bought a spare as-is property and there's reasons not to sell it (even though I can't insure against say fire).
Christchurch zoning rules were relaxed for a while plus our government was committed to more housing so Christchurch now has many more houses than a decade ago. House prices are going up even though you can effectively only get variable mortgages in New Zealand at 7%. We have more house supply but demand is outpacing that because we also have high immigration (30% of NZ population was born overseas and we still encourage immigration).
As an individual buying a house the market dynamic is visible - I borrowed as much as I possibly could to buy the best place I could afford for my home. Bank lending rules drove my pricing. The "market" price for the house did not set my price (low competition blind deadline bid - I could not know what others bid and a price could not be accurately calculated for my property). Market price is set by competition between buyers - most buyers are borrowing as much as they can.
The economically worst part is that it is a zero-sum game with everybody competing for how much money they can give to banks for interest payments. We all lose.
The graph of sold house prices in a city looks strange - a severe cut-off just below the median price. Investigate the underlying cause for that and everything will be revealed?