Monday, July 13, 2015

Housing Tax Policy, A Series: Part 41 - A Free Housing Market vs. a Constrained Housing Market

Tyler Cowen links to these population density maps of New York, day and night:

This is the difference between a market that is allowed to clear and one that isn’t.

No activist has ever marched on City Hall to get rent control for investment bankers’ offices in the 60th floor of a skyscraper. No activist has ever complained that the new skyscrapers being built to house new offices will ruin the neighborhood where the other offices are. No activist has ever marched to stop the new commercial landlord from raising rents on the importer-exporter, forcing them out to be replaced by a commodities broker.

Those daytime population densities reflect the density that happens in a functional market where supply is unencumbered. The nighttime densities reflect a sick semi-market where potential suppliers are harassed and micromanaged.

There is a status quo bias about these things. We assume that this is just the natural way that cities develop. But, it’s not. It’s the result of a long buildup of peculiar policies. There are trillions of dollars worth of untapped resources hundreds of feet in the air in our major core cities which we have strangled ourselves into leaving unused. One reason productivity and real growth have been low is that instead of building housing that consists of $100,000 of building materials and $400,000 of intrinsic location value in our core cities, households substitute housing outside the cities that consists of $300,000 of building materials and $100,000 of intrinsic location value. Those core city homes simply aren’t available and the housing stock that is there gets bid up and up and up.

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