I don't know if the key issue is whether it is counter-intuitive as much as how it can be read as a signal.
If you just don't think much about econ and someone says "allow people to build more housing for rich people" well maybe you care about lowering housing prices for everyone or maybe you just care about letting the rich get nice housing.
If you say let's fund housing subsidies for the poor your position might be silly but there is no room for uncertainty about who you want to say needs help.
We are creatures of alliance and status and we mostly care about what policies say about us and others than what they do.
Alexander Craig writes, "adding housing for rent at above-average prices can lower the average price of housing in a city."
True, but someone with only slight economic understanding but a good math understanding would believe this. Even if there were no effect on the prices of lower-end houses, the increase in the supply of upper-end houses would bring down THEIR prices, thus bringing down the average price.
That is true, assuming your interlocutor doesn’t assume the demand curve is flat, ie that there is an infinite supply of new rich people to move in and buy the houses. That seems to be a very common implicit assumption, that there are no local changes that affect market prices. I presume that is because most people are price takers and so assume P is fixed and only Q moves.
"CAN" is doing a lot of work there. "WILL" is what people care about and what they see is "WON'T" in practice.
Also the average price house is irrelevant, like the average wage or family size, the tails are what matter here as housing tends to be U shaped. People in the middle rent.
Why can’t we just say that increasing the supply of land - by allowing building, of any kind - will reduce ground rents? It’s intuitive. People like to play up the benefits of advanced training in economic analysis. These should be acknowledged but the outlook promotes technocracy and bad policy, because most of the people offering counterintuitive insights are trying to create a (regulatory) role for themselves.
Because it's not true as a rule, not all land is equal and depending on property taxes, people will hold or destroy empty buildings rather than reduce rent. Infinite wide free land is irrelevant, nobody wants to make a 20 hour commute for a minimum wage job.
I tend to agree that adding high priced housing lowers prices for lower priced housing. However, due to my personal observations of perhaps a unique situation where I live, I wonder if it is always the case. I live in Steamboat Springs, CO, a resort town attracting many affluent non-residents as part-time residents. It's not clear to me adding stock of these very high priced vacation homes helps lower the prices of lower priced homes for local residents. It's nearly a different market. Comments?
Do you mean that when high-priced housing is added, it attracts new high rollers? I certainly believe that. But you're in a very small tourist trap market. Statistics don't scale down easily.
Expand the area. New high roller vacation homes in your area mean high roller vacation homes in other areas are losing tenants and owners, and have to lower prices to compete.
We live in a similar community but on the seashore. The addition of more yachts has not lowered the price of fishing boats. And the addition of large homes for the yacht owners has increased the price of labour as all the trades are busy building those homes, so the cost of housing has increased for everyone. As someone else observed, this doesn't scale well in smaller communities.
Nor big ones, I live on Honolulu. Just means more empty "vacation" condos sitting empty while Chinese nationals hide their money given effectively 0% property tax here. Or the multigenerational house that has 16 people in a three bedroom just splits in half and now eight in each but it doesn't reduce rents nor prices because they would have just kept living 16 deep their entire lives. It's simply lateral physical mobility with no change in supply.
Maybe the word "intuitive" is too vague. A lot of what I think is obvious is only so because experience makes it obvious, such as movies becoming cheaper once they spread to more screens or get their second breath in second-run theaters because new first-run movies displace them.
In particular, politicians lie their asses off and spout whatever nonsense they can shovel at the public. Minimum wage laws, occupational licensing, rent control -- politicians have corrupted what ought to be intuitive.
Outside of economics, politicians have demonized bayonet lugs in their gun control frenzy. Has anyone ever committed any crimes with bayonets on rifles? Never mind -- politicians say they are bad, so ban them. Ask any hoplophobe -- I doubt a single one could articulate what is evil about bayonet lugs, but it is obvious -- intuitive -- ban them!
It's not just the seen/unseen or bayonet lugs. Politicians change what is intuitive far more than we realize, until we think about it enough to make that a meta intuitive thought.
A bayonet on a shotgun? I've never heard of that. Was it a military shotgun for the trenches?
I only ever heard of bayonet lugs in relation to "defining" assault weapons because they had no other way to define "military style" guns. That should have been a clue that such a category was meaningless, but so much for intuition ...
Yea, my Mossberg 500 has a bayonet lug. Not sure how common it is, but I have a small, dagger style bayonet for it.
I will have to look up what the deal with bayonets and other "choppy bits for guns" is. I keep thinking I need to make a combination blunderbuss and ax like the old coach guns. Last thing I need is finding out the ATF gets really shirty about that ex post.
I had a “replica” pirate pistol which would have taken a lot of work to make functional; the flintlock was made of the wrong metal and could never create sparks, plus its geometry was wrong to boot. But it had a marvelous blade along the top, hinged at the front, spring loaded, and if you pulled back a latch at the rear with your thumb, it sprung up and forward with four or five inches of pointy blade. It would have been great for Halloween, but I was never tempted to test how it would be perceived.
Yea, my thought was to get a proper replica kit of a functional 17th century blunderbuss and forge a socketed ax head and build a new stock to take take the parts. Not exactly a weekend project :D
“adding housing for rent at above-average prices can lower the average price of housing in a city.”—Why isn’t this intuitive?
This is no different than if an elite college increases its enrollment; the effect would be that more students are accepted into better schools.
The logic in both scenarios relies on supply and demand for fixed slots:
The Chain Reaction: If an elite college adds 500 seats, they will likely admit students who otherwise would have attended the next most selective institution. This reduces competition at that second institution, allowing them to admit students who would have gone to their third choice, and so on.
I don't know if the key issue is whether it is counter-intuitive as much as how it can be read as a signal.
If you just don't think much about econ and someone says "allow people to build more housing for rich people" well maybe you care about lowering housing prices for everyone or maybe you just care about letting the rich get nice housing.
If you say let's fund housing subsidies for the poor your position might be silly but there is no room for uncertainty about who you want to say needs help.
We are creatures of alliance and status and we mostly care about what policies say about us and others than what they do.
Excellent post.
Alexander Craig writes, "adding housing for rent at above-average prices can lower the average price of housing in a city."
True, but someone with only slight economic understanding but a good math understanding would believe this. Even if there were no effect on the prices of lower-end houses, the increase in the supply of upper-end houses would bring down THEIR prices, thus bringing down the average price.
That is true, assuming your interlocutor doesn’t assume the demand curve is flat, ie that there is an infinite supply of new rich people to move in and buy the houses. That seems to be a very common implicit assumption, that there are no local changes that affect market prices. I presume that is because most people are price takers and so assume P is fixed and only Q moves.
"CAN" is doing a lot of work there. "WILL" is what people care about and what they see is "WON'T" in practice.
Also the average price house is irrelevant, like the average wage or family size, the tails are what matter here as housing tends to be U shaped. People in the middle rent.
Why can’t we just say that increasing the supply of land - by allowing building, of any kind - will reduce ground rents? It’s intuitive. People like to play up the benefits of advanced training in economic analysis. These should be acknowledged but the outlook promotes technocracy and bad policy, because most of the people offering counterintuitive insights are trying to create a (regulatory) role for themselves.
Because it's not true as a rule, not all land is equal and depending on property taxes, people will hold or destroy empty buildings rather than reduce rent. Infinite wide free land is irrelevant, nobody wants to make a 20 hour commute for a minimum wage job.
I tend to agree that adding high priced housing lowers prices for lower priced housing. However, due to my personal observations of perhaps a unique situation where I live, I wonder if it is always the case. I live in Steamboat Springs, CO, a resort town attracting many affluent non-residents as part-time residents. It's not clear to me adding stock of these very high priced vacation homes helps lower the prices of lower priced homes for local residents. It's nearly a different market. Comments?
Do you mean that when high-priced housing is added, it attracts new high rollers? I certainly believe that. But you're in a very small tourist trap market. Statistics don't scale down easily.
Expand the area. New high roller vacation homes in your area mean high roller vacation homes in other areas are losing tenants and owners, and have to lower prices to compete.
We live in a similar community but on the seashore. The addition of more yachts has not lowered the price of fishing boats. And the addition of large homes for the yacht owners has increased the price of labour as all the trades are busy building those homes, so the cost of housing has increased for everyone. As someone else observed, this doesn't scale well in smaller communities.
Nor big ones, I live on Honolulu. Just means more empty "vacation" condos sitting empty while Chinese nationals hide their money given effectively 0% property tax here. Or the multigenerational house that has 16 people in a three bedroom just splits in half and now eight in each but it doesn't reduce rents nor prices because they would have just kept living 16 deep their entire lives. It's simply lateral physical mobility with no change in supply.
Maybe the word "intuitive" is too vague. A lot of what I think is obvious is only so because experience makes it obvious, such as movies becoming cheaper once they spread to more screens or get their second breath in second-run theaters because new first-run movies displace them.
In particular, politicians lie their asses off and spout whatever nonsense they can shovel at the public. Minimum wage laws, occupational licensing, rent control -- politicians have corrupted what ought to be intuitive.
Outside of economics, politicians have demonized bayonet lugs in their gun control frenzy. Has anyone ever committed any crimes with bayonets on rifles? Never mind -- politicians say they are bad, so ban them. Ask any hoplophobe -- I doubt a single one could articulate what is evil about bayonet lugs, but it is obvious -- intuitive -- ban them!
It's not just the seen/unseen or bayonet lugs. Politicians change what is intuitive far more than we realize, until we think about it enough to make that a meta intuitive thought.
That’s funny; I used to keep a bayonet on my home defense shotgun. I wonder if that is illegal now…
A bayonet on a shotgun? I've never heard of that. Was it a military shotgun for the trenches?
I only ever heard of bayonet lugs in relation to "defining" assault weapons because they had no other way to define "military style" guns. That should have been a clue that such a category was meaningless, but so much for intuition ...
Yea, my Mossberg 500 has a bayonet lug. Not sure how common it is, but I have a small, dagger style bayonet for it.
I will have to look up what the deal with bayonets and other "choppy bits for guns" is. I keep thinking I need to make a combination blunderbuss and ax like the old coach guns. Last thing I need is finding out the ATF gets really shirty about that ex post.
I had a “replica” pirate pistol which would have taken a lot of work to make functional; the flintlock was made of the wrong metal and could never create sparks, plus its geometry was wrong to boot. But it had a marvelous blade along the top, hinged at the front, spring loaded, and if you pulled back a latch at the rear with your thumb, it sprung up and forward with four or five inches of pointy blade. It would have been great for Halloween, but I was never tempted to test how it would be perceived.
Yea, my thought was to get a proper replica kit of a functional 17th century blunderbuss and forge a socketed ax head and build a new stock to take take the parts. Not exactly a weekend project :D
“adding housing for rent at above-average prices can lower the average price of housing in a city.”—Why isn’t this intuitive?
This is no different than if an elite college increases its enrollment; the effect would be that more students are accepted into better schools.
The logic in both scenarios relies on supply and demand for fixed slots:
The Chain Reaction: If an elite college adds 500 seats, they will likely admit students who otherwise would have attended the next most selective institution. This reduces competition at that second institution, allowing them to admit students who would have gone to their third choice, and so on.