From land prices to construction deficits

During the 2010s, Chile experienced significant housing overvaluation and unaffordability. This chapter challenges the prevailing belief that land costs for developers are the primary cause of this issue. This study analyzes official data from Santiago, the capital city, showing that, on average, land costs for developers did not increase but slightly decreased between 2010 and 2019 due to fewer public restrictions on residential density. This indicates that land costs alone cannot explain the substantial rise in housing prices. This study investigates the impact of other economic and political factors on housing overappreciation, finding a surge in housing demand due to immigration and a shortage of new housing constructed since 2000 as a more probable cause. This supply shortage led to higher housing prices and rents, while housing demand became increasingly inelastic to absorb them. This study explores potential reasons for the lack of new housing construction and highlights the possibility of developers’ collusion, being a shortcoming of Chile’s neoliberal housing market. Finally, this study offers suggestions for improving market competitiveness, boosting new housing construction, and thus improving housing affordability in Chile.