Bottom Line: Hill development is more expensive than development on level ground. Thus, there is little commercial activity. This leads to an increase in demand for hill houses, which translates as an increase in housing prices. The people who purchase hill houses typically have higher incomes and accordingly, higher budget constraints, to offset the higher costs of living in the hills. Emmeline Sun says:

It’s common to drive through an average suburban or metropolitan city and find yourself driving toward the “rich neighborhoods” the higher up you go. Take an urban setting like Berkeley, California for example. The houses and tenements located in South Side (note: closer to sea level) tend to be old and shabby. Yet as you go up toward North Side, the houses begin to straighten out, and you see a shiny imported mosaic window here, a well-kept garden there. They appear in better condition, and are clearly more expensive than their South Side counterparts, though North Side and South Side are less than a few miles apart. So why is this?

The higher price-value operates in a two-fold way. Firstly, developers and contractors would much rather build and place commercial sites somewhere flat- this is due to the greater cost/difficulty of building in the hills. If a firm or individual can reduce variable costs, net profit will be greater. Now, because of the lack of commercial development, the hills become a desirable area to live. Housing prices shoot up because prospective home-owners (with greater income) see the tranquility and safety (and view) of the hills as a fair trade-off for the cost. For anyone purchasing a home here, their personal benefit from living in the hills will exceed costs. And the costs will naturally be (at a base level) slightly higher than they would be on level ground, as housing development is more expensive in the hills.

Furthermore, hilly areas are often removed from the community, which makes it harder to live there. Travel time increases and people often have to commute. Public transportation rarely runs in these areas and many hillside home-owners have cars. To own a car or otherwise meet these inconveniences, one must have dispensable resources, i.e., a greater income. This equates to a higher budget constraint… which might also be applied toward sprucing up their houses with the aforementioned mosaic windows and pretty gardens. The picturesque quality of the neighborhood then leads again to an increase in housing prices, and the cycle
continues…

Bottom Line: Hill development is more expensive than development on level ground. Thus, there is little commercial activity. This leads to an increase in demand for hill houses, which translates as an increase in housing prices. The people who purchase hill houses typically have higher incomes and accordingly, higher budget constraints, to offset the higher costs of living in the hills.