The US has a shortage of housing, mostly more affordable options. While valuing anything can often be explained by replacement cost, the biggest driver of valuation is not the appliances in the kitchen, the light fixtures in the dining room, or the marble slabs in the bathrooms. Scarcity fuels valuation more than anything.

Both sellers and buyers of homes who wish to preserve their investment and grow it, should focus on this aspect more than anything. Scarcity in real estate terms basically boils down to two things:

1. How many of these properties exist in the market?

2. How many more could be built to replicate this?

Scarcity can be fueled by multiple factors. Of course, location is the primary driver. How can you identify this easily? Often, it's when you see more modest homes being torn down, replaced with new, larger, homes. That usually indicates a scarcity of land and the opportunity to build more. Land in prime locations that are convenient are becoming increasingly scarce in the world's bigger cities, not just the biggest cities like New York, where we see large skyscrapers torn down and replaced with even larger ones.

Other scarcity items that can be real value-adds are a truly 100% protected view, a lot with 100-year-old trees, the type of landscaping that takes decades to achieve, a room with ceiling heights that local zoning laws no longer allow. A home of historical significance. A home designed by an A-grade architect who is no longer with us. Simpler items like being at the end of a cul-de-sac, a corner, or waterfront/park-front matter too. Any grandfathered variances to local codes and zoning should be identified.

Here is the one big challenge. In a world deprived of housing stock within areas that benefit from limited commute times, there is lots of chatter about changing zoning laws to accommodate more housing. Would a duplex next to a large single-family home devalue that single-family home? In many areas around the world, this has not been the case when done so with good taste and clear guidelines that don't detract from an area's appeal. Done randomly and executed poorly, not only will existing homes devalue, but the tax base will too. The best way to prevent this from happening is to collaborate intelligently and prudently.