Simple demand and supply dynamics can help explain this. Here are a few reasons that often go unexplained:
1. Onerous Inefficient Regulatory System Severely Stymies The Supply of Homes
The lengthy and inefficient Town and Country and Regional Corporation approval process which takes on average about one year deters prospective home builders from building homes. This has the effect of restricting supply consequently decreasing the stock of homes available on the market. Prices are therefore forced upward because existing homes become more scarce and prices are bid up by prospective home purchasers.
2. Economic Crowding Out
When construction materials are are demanded by an institution with deep pockets such as the state to build unnecessarily big infrastructure projects: tall buildings, poorly built houses that have to be torn down and rebuilt etc. it causes increased prices.
Consider that available construction material and labour is finite, and when government enters the market for construction material and labour the state is actually competing against private individuals for access to these finite resources the end result are increases in home construction costs.
Private construction is therefore crowded out which could have been done cheaper, faster and to the specific tastes and preferences of individual citizens. Ironically the construction prices the tax payer pays is bid up by his/her tax dollars when trying to build a home.
3. The Illegal Drug Trade - Money Laundering
Investment in real estate is a popular technique of concealing the source of money obtained by illicit means. A classic approach is to purchase real estate with illegal proceeds and subsequently dispose of the asset. The proceeds from the disposal thereby appear to outsiders to be legitimate income. Real estate may also be used as an investment vehicle to park illicit gains for the short to medium term.
4. Money Supply Expansion - Inflating Real Estate Prices
A major reason real estate prices have been going up rapidly is because the Central Government by way of the Central Bank has constantly been increasing the money supply. This serves to inflate all prices including real estate prices.
The problem is made exponentially worse when commercial banks in turn use the consequent increased bank deposits to create additional credit or purchasing power further bidding up prices. Worse yet when there is no increase in productivity or output. This phenomena is not only present in the housing market but also in overall price levels throughout the country. We therefore have a few more houses being chased by a lot more TT dollars.
As alluded to above there is significant excess liquidity (cash and cash equivalents) slushing around in the economy looking for a home consequently, a significant portion of these funds end up in real estate pushing up real estate prices since this asset class is viewed as an inflationary hedge and a potential income generating asset.