To address climate change, California requires new buildings to meet stringent green requirements, including solar panels and other environmentally friendly designs. Green technology is costly, and there are concerns that these initiatives will raise California’s already expensive real estate costs.
The New York Times notes that green technology on new builds can often increase the price of a new home by at least $20,000. These increases will not just affect the residential market but the commercial market as well. This will force developers to consider their prospective market more carefully when considering new projects.
Are prices getting too high?
This is the central question facing developers and economists. The basic concept of a market is that there is a point where price will outgrow demand. However, these rules tend to exclude markets such as real estate, where the demand is constant. Likely, the increased prices for new builds will not exceed the market.
However, there is always a worry that any market’s raising prices could create a bubble. An industry bubble is created when prices excessively exceed an asset’s “fundamental value.” In the case of California’s real estate, the worry is that the unrelenting growth of real estate prices is a sign of an overvalued asset.
Bubbles are only recognizable in hindsight
There is no way to definitely state that the current or future real estate market is “bubbling” or not. Savvy investors and developers still take precautions in their industry and take notes of the signs. If prices are soaring but the basic value of your assets is roughly in line with increases, things may be relatively stable
However, there is no downside to looking at the market fluctuations making plans for your future. In fact, with proper planning, you could turn any economic upheaval into a windfall.