One of the basic concepts of economics is scarcity. And, one of the scarcest assets is land, especially in the coastal communities of California. Through outsourcing and international trade, we are now able to tap into an international distribution network of manufactured goods. A factory in China can produce more clothes, more shoes, more computers and more flat screen televisions, each better and cheaper than the generation before it. But, that same factory cannot produce more land for Californians. As a result, construction companies are building new housing further from existing communities, or finding infill in urban areas to repurpose existing buildings or lands for new houses.

For areas rich in job opportunities, the housing market has proven to be extremely challenging – especially for buyers – in the past few years as median home prices have climbed upwards often seemingly at an astronomical pace. Sometimes, so much so as to evoke the “bubble” term reminiscent of the dot.com heydays. But, real estate is different. Sure, housing prices are governed by supply and demand just like stocks, but while you can issue new stocks, you cannot produce more land. That is the fundamental difference.

For those seeking to invest in real estate, the Vanguard REIT Index Fund offers investors a low-cost means (i.e., 0.24% expense ratio as of Jan 31, 2004) to participate in the real estate market without the hassles of managing the property itself. For those who are able to provide a larger commitment in terms of time and effort, buying a second condo, home or even an apartment complex offers the next step up. Alternatively, if you can afford it, when you are ready to move into a new house, rent out your existing condo or home instead of selling it. This offers you the advantage of renting out a place with which you are familiar.

More Resources

• California Apartment Association Rental housing trade association serving California, representing owners, management companies, and residential managers. Provides articles, forms and educational events.
• National Real Estate Investor Offers news on the real estate investment industry.
• Landlord & Property Management Resource Center Offers articles and tips on landlord-tenant relations and property management. From Nolo.com.