The Econ Odyssey

For much of the last 15 years — especially after the 2008 financial crisis and during the COVID-19 pandemic — interest rates were historically low.

When interest rates fall:

• Mortgages become cheaper
• Borrowing increases
• More people qualify for loans
• Asset prices rise

Housing is particularly sensitive to interest rates because it’s usually bought with leverage. A small drop in rates dramatically increases what buyers can afford to borrow.

The result? Prices climb.

But here’s the nuance: low rates don’t just help first-time buyers. They also benefit investors. Property becomes attractive not just as shelter, but as a store of value and a yield-generating asset.

Cheap money inflated housing demand globally.

At the same time, supply hasn’t kept up.

Urban land is limited. Zoning laws restrict building height and density. Approval processes are slow. Infrastructure lags behind population growth.

In many cities, construction simply doesn’t match demand.

When:

• Population grows
• Incomes rise
• Investment demand increases

But housing supply responds slowly, prices escalate.

This isn’t just market failure. It’s political economy. Homeowners often resist new development because higher supply can soften prices — and their property is their wealth.

So scarcity becomes self-reinforcing.

One of the biggest shifts in modern economies is the financialization of housing.

Homes are no longer just places to live. They are:

• Collateral
• Retirement assets
• Rental income streams
• Speculative investments

Institutional investors, private equity firms, and global funds now buy residential property at scale. In many cities, housing markets are linked to global capital flows.

When foreign money enters local real estate markets, prices rise beyond local wage growth.

Housing becomes disconnected from income — and anchored instead to capital availability.

While housing prices have surged, wage growth in many countries has been relatively slow.

That gap matters.

If home prices grow at 10% annually but wages grow at 4%, affordability deteriorates over time — even without speculative bubbles.

Housing affordability isn’t just about price levels. It’s about price-to-income ratios.

And those ratios have widened globally.

In India, the story has its own dynamics.

Urban migration continues. Middle-class demand for ownership remains strong. Real estate is often viewed as a stable investment relative to volatile financial markets.

At the same time:

• Land acquisition is complex
• Regulatory approvals are slow
• Urban planning constraints limit density

Cities like Mumbai face extreme land scarcity, while cities like Bengaluru and Gurgaon see rapid expansion but infrastructure strain.

India hasn’t experienced housing inflation in the same way as some Western markets over the past decade — but affordability challenges remain due to income disparities and financing costs.

The pressures look different. The structural themes are similar.

Now that global interest rates have risen again, mortgage costs have increased.

But prices haven’t fallen proportionately in many cities.

Why?

Because:

• Supply is still constrained
• Investors hold property long-term
• Demand remains strong
• Housing markets adjust slowly downward

Housing markets are sticky. They rise quickly in booms, but fall gradually in slowdowns.

Affordability pain lingers.

Whether it’s:

• Toronto
• Berlin
• London
• Mumbai
• San Francisco

The pattern is similar:

Cheap credit + constrained supply + rising investment demand = expensive housing.

The specifics vary. The mechanism repeats.

Housing feels unaffordable because it sits at the intersection of:

• Monetary policy
• Urban regulation
• Wealth inequality
• Investment behavior

It’s not just a supply issue.
It’s not just a demand issue.
It’s not just speculation.

It’s structural.

And when housing becomes primarily an asset, those who already own property benefit from rising prices — while those trying to enter the market face increasingly high barriers.

Affordability becomes generational.

Housing markets don’t just reflect where people want to live.

They reflect:

• Where capital wants to park
• Where policy allows building
• Where interest rates make borrowing easy

Homes are emotional.
But housing is economic.

And until supply, credit conditions, and investment incentives align differently, housing will continue to feel less like shelter — and more like a financial instrument.