tag:blogger.com,1999:blog-1110014885778996459.post4612750733184286939..comments2024-03-28T11:48:09.419-07:00Comments on Idiosyncratic Whisk: Housing Part 113 - Fixed Investment vs. LocationKevin Erdmannhttp://www.blogger.com/profile/07431566729667544886noreply@blogger.comBlogger4125tag:blogger.com,1999:blog-1110014885778996459.post-2455242027114357202016-02-03T10:39:42.602-07:002016-02-03T10:39:42.602-07:00Yes. I think you're right. This does seem to...Yes. I think you're right. This does seem to be the case, but it takes a lot of incentive to push building levels up in those cities.Kevin Erdmannhttps://www.blogger.com/profile/07431566729667544886noreply@blogger.comtag:blogger.com,1999:blog-1110014885778996459.post-69343415197624657762016-02-03T10:37:19.452-07:002016-02-03T10:37:19.452-07:00It seems to me that in contexts that aren't se...It seems to me that in contexts that aren't severely constrained, nominal housing demand basically has unitary elasticity. However much housing costs, households will tend to spend about 20-25% of income on rent. This is accommodated with changes in real housing expenditures. So, places with more location value naturally have less real housing. Even in a city without extreme supply issues, like Chicago, housing expenditures for the median household are somewhat stable, but what that buys in Naperville is a lot different than what it buys north of the loop. I suppose it is because housing is such a large budget item and so essential, that income effects dominate.<br /><br />I think your second paragraph is right. I think there would still be economies of scale without the bureaucratic issues, but it would be nice if those economies were applied to useful things instead of political obstacles.Kevin Erdmannhttps://www.blogger.com/profile/07431566729667544886noreply@blogger.comtag:blogger.com,1999:blog-1110014885778996459.post-13330672524169655922016-02-03T06:23:28.698-07:002016-02-03T06:23:28.698-07:00I think apartment-condo construction is going on a...I think apartment-condo construction is going on as prices have gotten so high, that it is worth the time of skilled developers to hurdle all the barriers put up by local governments to get something built. That is the case in Los Angeles anyway. On the hand, it is still impossible to build nearly anything in many coastal cities.<br /><br />Benjamin Colehttps://www.blogger.com/profile/14001038338873263877noreply@blogger.comtag:blogger.com,1999:blog-1110014885778996459.post-21102878614231946882016-02-02T23:19:15.017-07:002016-02-02T23:19:15.017-07:00One might ask whether this phenomenon (substitutio...One might ask whether this phenomenon (substitution of materials/work for location) is simply the result of cost-saving measures by builders taken as location gets more and more expensive, or the result of consumer substitution of size, etc. for location? E.g., if I can't get an apartment in New York, instead I'll build a McMansion somewhere else. If size can be treated as a substitute for location (obviously not a perfect substitute; but even assuming a person is confined to a single metro area, there's still the choice between the downtown apartment and the suburban house), then specifically driving up the price of location could increase demand for bigger houses on bigger lots, which, dare I say, wastes a great deal of land to compensate the homeowner for the cost of not getting to live in New York or San Francisco.<br /><br />"Total building in the Closed Access cities has been strong (relative to the depression levels of the rest of the country). But, that has been almost entirely because of multi-unit building. This isn't because those cities have suddenly seen the light. It's just because the constraints created by our hindered mortgage market aren't a constraint for large corporate developers, so their building rates are still determined by the same bureaucratic obstacles they always are."<br />This statement piques my interest just because this has long been my belief with a lot of industries: that there are economies of scale when it comes to regulatory compliance (or capture); that overregulation tends to concentrate market share into fewer, larger hands, meaning well-intentioned regulation often actually exacerbates the 'too big to fail' problem.Anonymoushttps://www.blogger.com/profile/07928458476301534836noreply@blogger.com