Fair Market Rate (FMR) is a term used by the real estate industry with wild abandon. Determining what would be acceptable to pay for a property is a large part of what constitutes the cost of living for most people. If rents or mortgages are high, most people will avoid incidental spending which local small businesses rely on to survive. However, if real estate is a commodity or an investment, there is no incentive for the real estate industry to lower their costs. After all, profits are the motivation for all businesses that are not nonprofits, and even nonprofits have operating costs.
What distorts the FMR is globalization, by and large, because the principle is that property should cost whatever people are willing to pay. In fact, supposedly at the roots of the supply-and-demand principles, people can charge what the “market” will bear. Unfortunately, this means that people in Idaho are competing with people in Alaska, and both of them are competing with people from Rome, Italy. All the development companies see is a product, not a piece of a community or a mainstay for the community–like a long-term business. Keeping up with international salaries are impossible because people are paid differently based on the what the local market is, while real estate companies only think about the global market.
Sadly, if all the businesses are only after the moguls, real estate lies deserted, and cities begin to fill with vacant properties, which then attract transient behavior and lifestyles. People cannot afford to live above their means, and more people are paid less since wages have stagnated. Properties have been raising their prices to attract those who choose not to commit to communities, and the original residents have been decimated by the rise in taxes and the change in businesses. Some real estate entities have even tried to change the names of neighborhoods, ignoring the fact that their properties would be worth less without the original neighborhoods.
To reach FMR, more real estate entities should research the actual salaries of the locals, followed by recognizing the quantities of people at each salary. For example, if 13 venture capitalists live in the city of Greenwich, Connecticut, but there are 200 service workers, the market should not obsess over the venture capitalists because there are so few people at that salary. Cities with large concentrations of industry need to recognize that most people in those areas do not maintain the highest salaries, and plan accordingly. All salaries make up cities, and without realizing that fact, people without means will be isolated at the margins without the ability to function.