Why housing prices in some cities can increase at incredibly fast rates?

Housing prices in large cities are super high without doubt, and higher housing prices make these cities become very expensive places to live; however, every year, tens of thousands of people are still rushing into these large cities to find their places to live despite the high costs of living. Why? This is because large cities have more opportunities and people expect they can get higher incomes when they move to large cities. We can see as long as people expect their incomes will be high enough to compensate the higher living costs in large cities, they will move to large cities to seek opportunities. Therefore, the demand for housing and rental in large cities will continue to increase, until people’s expectations of increases in their incomes are merely equal to people’s expectations of increases in their living costs in large cities. Of course, individuals have different risk preferences, when the population is more risk loving, the prices in large cities are more likely to increases faster than some places where the population is more risk averse.

In addition, as long as an economy is expanding and growing, people will expect their incomes to increase in the future, this will lead people to move to large cities or countries where they expect have higher economic growth rates, as higher growth rates can make their incomes more likely to increase faster. Even within one economy, different regions have different economic performances, therefore people in different will have different changes in their incomes. It is more likely to have higher income growth in large cities than in small cities. Moreover, people will continue to expect there will be future economic growth and large cities will be the largest winners; under such circumstance, more and more people are going to move to large cities in order to get higher incomes and more wealth. When people are moving to large cities, the demand for housing in large cities is going to keep increasing, this will lead to a decline in the demand for housing in small cities, as the population is constant. Therefore, housing prices in large cities will increase in an incredibly fast rate compared with housing prices in small cities and median cities.

To conclude, as long as we believe our economy will be growing over time, housing prices in large cities will continue to increase at an incredibly high rate. (Of course, if the population drops sharply, housing prices will be affected, but housing prices in small and median cities will drop further than housing prices in large cities)