http://www.progress.org/antgrass.htm

An interesting twist to an old parable, but it substitutes reality for an unlikely system. Many arguments are made against the free-enterprise system because it can suffer from monopolies, but they fail to recognize that such possibilities are remarkably rare without governmental assistance. In the parable given, the ants do all the work and pay all the result of their labor to the grasshopper in the form of rent. However, as long as there is just one land-lord without a tennet then rents must fall; it is better to have a tennent paying a little rent than be collecting no rent at all. This is often called a buyer's market.

True, in such a scenario it only takes one more resident to start rates rising, since there are now more buyers (renters) than sellers (land-lords). At this point rates are going to go up until people become better off moving to another town and thus do so, equalizing the number of buyers and sellers in the local market. In the long run, given a seller's market, being a landlord is very profitable so everyone wants to be one. Owners of vacant land eagerly build houses, owners of houses eagerly upgrade to apartments, etc.

Ultimately, such behavior as expanding the supply is not in the landlord's collective interest, as it will reduce rent rates. However, it is entirely in the interest of each individual landlord to gain a larger share of the pie, even if doing so reduces the overall size of the pie. Luckily, as Libertarians are quick to point out, land-lords of today have discovered a new tool for fixing this unfortunate conflict: Government.

In San Francisco today it is extremely difficult to get a construction permit to either build new housing on vacant land or to upgrade existing housing. It takes a minimum of 6 months to get a permit and even then a large percentage are refused on environmental, congestion, and quality of life grounds. It doesn't end there, of course, as a load of regulations then proceed to drive up the construction costs of the housing that does get built.

It is no accident that the cities that have seen the fastest growth in home prices are also the most restrictive, San Francisco king among them. If these restrictions were loosened a bit you would quickly see a boost in construction, high-rise apartments downtown, suburbs replaced with stacked apartments, and wilderness transformed into suburbs, and after five years quickly falling rents. But the existing land-lords of San Francisco like living off the backs of new comers, so things are not likely to change.

5/31/2006 2:23:16 PM

MV = PQ. The government is trying to increase P. Clearly, they also want to increase the velocity of money.


[Edited on May 31, 2006 at 7:21 PM. Reason : sdfsdf]

5/31/2006 7:20:42 PM

yes, generally government involvement inadvertently increases supplier firms' pricing power

6/1/2006 12:46:50 AM

I am ussually the first to object to Urban planning and zoning regulations in particular.
But blaming "da gubbment" is hidding some very important things.

Libertarians love to pretend that the government is a force exogenous of "us". "They" put the regulations on "us"! But just who the hell is "they"? Zonning and other regulations are devices of homeowners to protect their "communities". Why?

Depends. Maybe without regulation white trash would move into your neighborhood and decrease you home's value. That certainly fits with LoneSnark's story about greedy land owners, but it also fits a story economists like to tell about internalizing externalities. And, from an efficiency standpoint, that's exactly what we want to happen.

Maybe there are better ways of accomplishing this goal. But maybe there arent? Like I said, these regulations are the result of a complex interaction between home owners and the politicans that represent them. Maybe, given the institutional structure, this WAS the best solution? Chances are the people on the ground know more about the possibilites than you do. But you will never know the truth until you look under this abstraction of "the government" to see what is happening.

[Edited on June 2, 2006 at 12:34 PM. Reason : ``]

6/2/2006 12:28:46 PM

But socks, we know what is happening. People on the inside are using their democratic rights to force down the supply of housing, pushing up the price, and pushing out the poor. There is no conspiracy here, this is what city council members put in their platforms, just not in so many words.

Some people are affraid of the city becoming overcrowded, others enjoy receiving astronomical rents, others enjoy borrowing more thanks to the higher value of their home.

In effect, they have collectively decided that they don't want anyone else to live there. But is that their right? And did they do it the correct way? There are developers that own barren land, but the land is worthless because they cannot build on it. At some point your property is your property, the city should have a really good reason to stop you from building on it. There must be some better way to manage sustainable growth without shifting immense volumes of wealth from renters and buyers, which tend to be poorer, to land-lords and sellers, which tend to be richer.

I guess my objection is, when did the wants of the natives become the only interests that mattered? The people that would have liked to move to San Francisco didn't get a vote, neither did the rest of the country which must now take in debt refugees from San Francisco, Boston, Seattle, Washington D.C., Atlanta, Philadelphia, New York, etc. etc.

6/2/2006 1:17:44 PM