One boundary first. This is about the owner-occupier market, the price of buying a home to live in. Rents run on a different mechanism, the balance between demand for housing services and the dwellings available, and are a separate story. And, while both markets operate over the same total housing stock, what follows is about the price of buying.
Most goods compete for a share of your budget, and when they get expensive, someone makes more of them and the price eases. Housing competes far less than most, and in the places people most want to live it does closer to the opposite. It climbs toward whatever buyers can pay, because the supply that would hold the price down cannot easily be added there. In every market both sides - supply and demand - set the price. This essay is about why, in housing, the demand side rules, and why the supply side is so unusually unable to answer it. Take them in turn.
