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Bubble contest: Speculative value inflated house prices

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Editor's note: The Washington, D.C.-based Center for Economic and Policy Research is sponsoring an essay contest on "Why there is no housing bubble." The winner will win $1,000. Send a copy of your entry to contest@inman.com for possible publication on Inman News. I am a commercial real estate broker and an investor in multifamily and commercial properties. I am entering the Center for Economic and Policy Research's contest, although I guess I won't win because as I am not in disagreement with some aspects of the center's position that there is a housing bubble. I find the most room for argument in the statement: "No one has yet produced a remotely plausible explanation of how fundamental factors can lead to a run-up in home sale prices, but not in rental prices." Actually this is simple. To start, let's look at real estate market values as being composed of two components, one being functional value and the other being speculative value. Functional value is what a property is wor...