Answer to Question #80256 in Microeconomics for Diamond

Question

Rents are soaring in LA area. What demand and supply determinants drive the rents going up? Tell us about your neighborhood’s housing market.

Answer 1

According to a report by the Apartment List, the average rental price in the city of Los Angeles is $1,360. Statistics show that the cost of rent in the city has increased by 1.6 percent since 2017 (Phelps, 2014). The report by the Apartment List shows that the rise of rental prices is attributed to the increased demand of the rental houses. Notably, supply and demand influence the housing market since it impacts the rental rates. In LA, the law of supply and demand dictates the average prices of houses in the city. Irrespective of the rise of real estate markets in LA, the demand of houses have increased, which reduces the supply of rentals in the city. As a result, the prices of rental houses increases that causes individuals to spend over 30 percent of their income on housing.
References
Phelps, E. S. (2014). Structural Slumps: The modern equilibrium theory of unemployment, interest, and assets. Cambridge, Mass: Harvard University Press.