The way costs serve as a filter is by constricting supply. Those cities are well past the cost level that would trigger supply. So, a unit that would cost $300,000 is already worth $1 million. To build it, you basically have to negotiate your way through a series of fees and kickbacks so that local governments and interest groups claim the $700,000 difference. It’s like third world governance with a functional bureaucracy. You don’t necessarily bribe anyone, but the parks department gets $100,000 per unit because your building throws a shadow somewhere for 30 minutes, and that money funds a healthy pension.
“third world governance with a functional bureaucracy” describes a very effective kleptrocratic system.
This is part of a much more general problem of modern democratic governments having developed much more subtle and illusive methods of corruption by which they are able to evade various formal procedural requirements and overcome constraints to their authority by means of camouflaging (or ‘laundering’) illegal state action through proxies, abusing fines and settlements, or by means of ‘selling indulgences’ which both allows plausibly deniable biased favoritism as will as indirect personal enrichment.
The key work on the subject – and anticipating how bad things would continue to get – is Richard Epstein’s Bargaining With The State. But even he merely scratches the surface of the more general phenomenon and the incredible difficulty of controlling it except by use of tactics that are more sledge hammer than scalpel, e.g., forbidding all consent decrees and replacing discretion with automatically triggered algorithms for many key state decisions.
Yeah, when I first read that, I thought to myself, “Mafia!”
Has there ever been a functional society of any duration that does not have some set of extractive mechanisms like this? If wasn’t the quasi legal mechanisms discussed above, why wouldn’t it be outright legal ones? Or commercial ones (all of the NIMBY’s form a giant corporation and assign all their land rights to it, it’s now impossible to build an apartment in the neighborhood because you cannot buy a lot from an individual.)
Or, suppose the anchor jobs/citizens/acitivities simply moved away for more space? There’s probably some limit to how much density the rainmakers will tolerate (Silicon Valley is probably well below it.) Unless you are a core participant in Google/Apple/Amazon/Microsoft you don’t really have a strong lever to be “near” them.
https://www.youtube.com/watch?v=DiG0LomEptE
Reminds me of Ancient Egyptian bureaucracy, described briefly in the link.
Egypt had a massively productive natural resource in the form of its land. However, that didn’t mean the people who worked it profited from this fact. Inevitably all surplus ends up being captured by someone. People only allow you to hang on to surplus if its unavoidable.
The better question is how do you avoid this. Other then railing against people who just want to protect the main asset of their entire life’s work, I haven’t seen or heard a lot of reasonable solutions.
Boston, with its BRA (after all these years), “affordability” accommodations,
monopoly labor – all spreading now to parts of “Greater” Boston.
It is that the cost is the land and no one is building any more of that. Redevelopment upward is possible but expensive as the benefit falls mostly on the current owner. As an investment good, owners want to see prices increase, and the fact that they do is a measure of their success, not a failure. Nothing stops anyone from moving out. For all the limitations on the supply side, there are few on the demand side and prices are the market at work. It is as if someone wishes to buy stock in a company but believes the company is just keeping its price too high and should offer them new stock at a reduced price because they can’t afford it and are special. Well they can just buy some other one.
“Nothing stops anyone from moving out.”
You’ve got that right. Millions of households – mostly those with low education and low income – have had to pick up and move out of the 4 big problem cities – NYC, LA, SF, Boston – because developers who want to create housing on that land face political obstructions of a scale that has no place in a civilized free society.
Yeah, the market at work.
“No one stops anyone from moving out.”
Wrong!
Don’t you know about “urban growth boundaries?” (Sometimes called farmland or open-space preservation.)
On the West Coast, for example, it is illegal to build new housing (or nearly anything, really) outside currently built-up areas, and legal (subject to all the zoning, permitting, exaction issues being discussed in this weblog) within them.
The laws are pure rent-seeking. They transfer the value of land outside the boundaries to land inside. In Oregon a quarter-acre of land on one side of the street is frequently worth more than twenty acres on the other even though the land is identical in character… because the UGB line runs down the middle of the street and you can put a house on the quarter-acre lot (subject to fees, bribes, delays, etc) but it is a criminal offense to build on the twenty acre lot.
That’s a great point.
On the other hand, Portland actually manages to take in domestic in-migration, across education levels. The out-migration, focused at the bottom end of the socio-economic range is very specific to the Closed Access cities (high income, very low housing starts) Boston, NYC, San Francisco/San Jose, LA, San Diego.
“Nothing stops anyone from moving out.”
Maybe not in ‘gun to the head’ coercion, starvation compulsion, or destitution levels of duress, sure. (Note all these terms are necessarily philosophically fuzzy and depend on ones personal and social judgment on when someone deserves sympathy for ‘having no choice’)
But doesn’t it seem like there is indeed some kind of special feature of these places making people believe they don’t have a better alternative life option than to suck up the high rents?
Yes, but doesn’t that have immensely more to do with where they would move to than from? They are doing something right to keep and draw as many as they do.
The Bay Area is a problem in to itself. It is not a city. Boston, LA, NYC have city prices that are not all that different from old world Europe. But the Bay Area is very low density; so the explanation is different. It’s the first major would be city that began after the suburban revolution of the 50s and strong growth did not occur until after prop13.
We need a new attempt at breaking prop13 on equal protection grounds.
https://www.oyez.org/cases/1991/90-1912
14th Amendment Libertarian.
1) When hasn’t local government been “third world governance with a functional bureaucracy” describes a very effective kleptrocratic system? In reality local government are hell of lot cleaner than 50 or 100 years ago.
2) Again, the main people who dominate city council tend to Long time homeowners? And long time homeowners like higher priced houses and less traffic/noise. And can remember Homer Simpson’s point about council meetings, they heavily attended by older long time residents.
For me, I don’t see how long time homeowners are any different than a pharma company with a valuable patent selling drugs at high prices.
Henry George “The Single Tax” — a tax on land value. A National tax, at 0% for median houses ($150k ?), 0.1% on the value from median to 2x median (~$300k),
0.5% on the value from 2x median to 4x median (~$600k), 1.0% on the value over this.
The zoning and restrictions ARE making the land valuable and desirable, along with the greater number of high paying jobs.
The bigger mystery is why the high paying jobs aren’t more quickly leaving the “too expensive” cities, for more expansive places. Concentration effects and the benefits of cities are big influences, but there are probably others.
Could the fed Gov. under the constitution declare some of the slow growth policies are interfering with interstate commerce?