Thomas Sowell
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"Who can afford to buy a house in this place?" my wife asked, when I read her the average prices of homes in various northern California communities.

 "We certainly can't," I said. Our home has more than doubled in value since we bought it 11 years ago. We couldn't live here if we had to pay today's prices. This is not unusual on the peninsula stretching from San Francisco to Silicon Valley.

 Home prices can be very misleading in this area because many -- if not most -- of the people living here never paid those prices. These are the prices of current home sales. They are the prices that newcomers moving in have to pay.

 That fact has a lot to do with skyrocketing home prices. The people who vote on the laws which severely restrict building, create costly bureaucratic delays, and impose arbitrary planning commission notions will not have to pay a dime toward the huge costs being imposed on anyone trying to build anything in the San Francisco Bay area. Newcomers get stuck with those costs.

 The biggest of these costs is the cost of the land rather than the cost of the houses themselves. The average price of homes is a million dollars in some San Francisco Bay area communities where it would be hard to find a single house that anyone would call a mansion.

 Nor are there many new homes being built in these communities. Old homes are simply being bid up in price, precisely because it is either impossible or ruinously expensive to build new homes.

 Unlike other places, where people trying to sell their houses usually have an asking price that they bring down somewhat in the course of negotiations with a prospective buyer, in the San Francisco Bay area the asking price is usually bid up during the competition among people who want to buy.

 Someone who bought a home for $100,000 back in the 1970s may put it on sale for $700,000 today -- and watch the buyers bid it up to $900,000. The average home price in San Mateo County, where it is nearly impossible to build anything, is $921,000.

 There are a lot of nice middle-class homes in San Mateo County, and some rather modest homes, but very few mansions.

 One of the middle-class communities in the county is Foster City, a planned community built back in the 1960s. When the first homes went on sale there in 1963, you could buy a three-bedroom house for as little as $22,000. If you wanted something bigger or more fancy, or in a more scenic location, you could still get it for under $50,000.

 Today, the average price of a home in Foster City is $1.2 million.

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Thomas Sowell

Thomas Sowell is a senior fellow at the Hoover Institute and author of The Housing Boom and Bust.

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