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Comment by davidf18 | Hacker News Reader

The author of the article is a professor of economics but doesn't state the true cause of rising housing costs: Market inefficiencies (or market failures) caused by politically induced market scarcity restrictions called "rent-seeking" which benefits landowners such as President Trump over people who rent or are purchasing housing.

Rent-seeking was first illustrated by David Ricardo in the mid-19th century (IIRC) and surprising that the author did not cite the true reasons for the rising housing costs.

Harvard Economist Edward Glaeser and Economist and Financial Times writer Tim Harford among many others writes about this.

Remember, rising prices come from scarcity. Eliminate the scarcity and your eliminate the high prices. Reverse the zoning density restrictions and you get lower prices.

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Tokyo is a good case study for how effective selective deregulation and zoning policy can lead to more efficient housing construction.

  In Minato ward — a desirable 20 sq km slice of central 
  Tokyo — the population is up 66 per cent over the past 20 
  years, from 145,000 to 241,000, an increase of about 
  100,000 residents. In the 121 sq km of San Francisco, the 
  population grew by about the same number over 20 years, 
  from 746,000 to 865,000 — a rise of 16 per cent. Yet 
  whereas the price of a home in San Francisco and London 
  has increased 231 per cent and 441 per cent respectively, 
  Minato ward has absorbed its population boom with price 
  rises of just 45 per cent.

https://www.forbes.com/sites/scottbeyer/2016/08/12/tokyos-af...

It also helps that Japan has a brilliant zoning system:

http://urbankchoze.blogspot.com/2014/04/japanese-zoning.html

Thank you. This is a great read and this is the suggestion Economist Cowan should have offered.

"Harding wrote in the article, the city had 142,417 housing starts in 2014, which was “more than the 83,657 housing permits issued in the state of California (population 38.7m), or the 137,010 houses started in the entire country of England (population 54.3m)." Compare this, also, with the roughly 20,000 new residential units approved annually in New York City, the 23,500 units started in Los Angeles County, and the measly 5,000 homes constructed in 2015 throughout the entire Bay Area."

And the true solution is to pass a law using Japan as an example: "The [Japanese] federal government recognized that these regulations were the problem, so in 2002, it passed the Urban Renaissance Law. The law stripped municipalities of the ability to control private property."

Here is another interesting article from the same author, Scott Beyer pointed to by this article. https://www.forbes.com/sites/scottbeyer/2016/05/25/modern-zo...

> The law stripped municipalities of the ability to control private property.

I can only dream. As someone who must post a permit and involve the city in order to remove a tree in my own back yard

Our homes are micromanaged here. It's like the city has created a city-wide HOA.

Ricardo's law of rent shows that indeed, even without artificial scarcities imposed by regulation, rent can go up forever as long as productivity is rising.

While we want housing to be affordable, arbitrarily trying to reduce rental costs is futile. Rent exists. It is a reflection of the intrinsic desirability of the location. The only way to reduce the rent is if the location becomes less desirable and less productive.

So, really, it is a question of political economy... of who should own the rising value of land, since that value is not a return for the effort of the owners.

> "Ricardo's law of rent shows that indeed, even without artificial scarcities imposed by regulation, rent can go up forever as long as productivity is rising."

The rent-seeking that he established states that political regulation can artificially create a situation of scarcity thus resulting in high lands costs that benefit landowners.

Specifically, he illustrated this regarding the "Corn Laws" of Britain which were a politically induced import duty on grains of all sorts making the cost of bread more expensive for consumers. Famers could charge more for the grain they grew because of less competition but the landowners would simply charge the famers more money. Thus, the import duties raised the cost of food for consumers while indirectly directing that wealth to landowners.

The "Corn Laws" created the market inefficiency, market failure which interfered with wealth creation and David Ricardo even joined British Parliament to combat the "Corn Laws." He eventually succeeded in the repeal.

While the values might continue to increase with rising productivity, the overriding factor at least for today's environment is the "rent-seeking" and we need to reverse the local control of land which benefits wealthy landowners like President Trump over normal working people.

Rising prices are due to scarcity. The scarcity is politically induced in order to in this case benefit landowners. Reverse the scarcity, politically induced or otherwise, and prices fall.

The price of gold has risen considerably over the years. There's no particular reason to suspect that this trend will stop, since it is tied in with rising levels of production.

It is quite possible to create an artificial scarcity of gold, and thus gold would be higher than it should be. But it would be ridiculous to claim "gold can't go up forever" and that to achieve affordable gold we only need to remove the artificial scarcity.

It may be desirable that we remove the artificial scarcity, but it is also a distraction from the core question at hand.

It is ignoring the natural scarcity and the general rising level of productivity. Prime locations are prime locations. A port, for instance, only becomes more desirable as total production levels increase.

> "It may be desirable that we remove the artificial scarcity, but it is also a distraction from the core question at hand."

I respectfully disagree and so does Harvard Economist Edward Glaeser who has written extensively about this as does FT columnist and economist Tim Harford (as explained in his book, "The Undercover Economist" as does Steve Beyer who has written about this in the NYT and Forbes as well as other places.

Japan passed a federal law that overruled local restrictions and in 2014 Tokyo built 140,000 residences compared with a total of 20,000 in NYC and about 90,000 in the entire state of California.

I'm speaking pragmatically.

> "A port, for instance..."

A port is a much greater and natural scarcity compared with, say Manhattan which is huge as well as London which is not an island, but made "an artificial one" because of the Green Belt that circles London.

Japanese people tear down old houses and rebuild new houses to their specifications to a much greater degree than Americans, so it's hard to compare those numbers easily.

Scarcity is a term that is relative to demand. If you have a trillion widgets, but a quadrillion customers desperately want them, you still have a major scarcity.

Not all of the land in cities is desirable. Parts of Manhattan are clearly far more desirable than others. And the people who want these prime locations far outnumber the availability of them. Not everyone can own a lot in Times Square, etc.

You call them rent seekers, but the vast majority of the anti-builders I see around the Bay Area are home owners who worry about traffic or some such. It's not some big conspiracy to increase profits. It's incumbent nimbyism.

Attend a town hall meeting where they're discussing a new apartment building and you'll meet them.

> "You call them rent seekers, but the vast majority of the anti-builders"

Many people have the vast majority of their wealth in their homes and as such want laws that increase the value and not laws that decrease the value by increasing supply. Regardless of the stated reason, the scarcity and rising prices thus market inefficiency are politically induced.

Many people have advocated for "Green Belts" parks with the true intent of decreasing available land to increase scarcity.

Even a lot of bay area renters are anti-development. "They're just going to build luxury condos and destroy the neighborhood character" is the go-to phrase.

> "Even a lot of bay area renters are anti-development."

They might be receiving some sort of rent control so that their rent is far below the market price. I know there are a number of people in NYC that live in rent-controlled, rent-regulated apartments.

You literally described rent seeking activity

>Remember, rising prices come from scarcity. Eliminate the scarcity and your eliminate the high prices. Reverse the zoning density restrictions and you get lower prices.

Yes, but why would you want to do this? Or more accurately, why would the powers-that-be in a given area want to do this? They already have their real estate, and they're profiting by the rising prices. Why would they want to bring prices down?

> Or more accurately, why would the powers-that-be in a given area want to do this?

Well, they generally would not. Except there are firms that must pay salaries that are not in real estate that have to pay their employees higher salaries in order to pay for the "rent-seeking" of landowners. It would benefit them to lobby and influence city council.

Also, powers that be love monopoly pricing but there are laws to stop monopolies.

Still, author Cowen is an Economist, yet doesn't state the true reason for rising housing prices, a discovery made two centuries ago by an extremely famous economist, David Ricardo.

>It would benefit them to lobby and influence city council.

Why would city council want to bring down rents? They and their cronies are profiting off the high real estate prices. The city council is, after all, composed of wealthy people who own land in the city. You can't have a city council composed of people who don't even live in the city.

>Also, powers that be love monopoly pricing but there are laws to stop monopolies.

Those laws only apply to corporations; they have nothing to do with real estate, and this isn't a monopoly situation. There isn't a single company that owns all the land, or all the apartments, in these high-priced cities. There's merely a shortage of usable land, because of geography and physics.

Basically, to fix this problem, we would need new laws at the State or Federal level, along with enforcement which would absolutely work against the wishes of these city councils. But there isn't much demand for such laws, because it's a local issue, and national-level politicians aren't going to do well trying to make it a campaign issue. Voters in rural areas just don't care about high rents in cities; they'll tell you that you just need to move out where they are and bring the high-paying jobs to their rural communities.

> "The city council is, after all, composed of wealthy people who own land in the city."

I can't speak for your city but in NYC, I'm not certain if any member of the city council is wealthy. I know my representative is not.

My point regarding anti-trust busting of monopolies is that federal legislation has been enacted before to combat deliberate attempts at market inefficiency and it could be done in the case of zoning density restrictions. In 2002, Japan enacted a federal law that overruled local land-use restrictions and as a result in 2014, Tokyo built 7 times the number of housing units as NYC (140,000 vs. 20,000).

We should do the same in the US as they did in Japan and you'll see more affordable housing.

We can't do that; we don't have the culture they have in Japan. These things are a product of culture. Japan has a culture in which street crime basically never happens; the US does not. The US has a culture where the politicians are thoroughly corrupt, especially at the local level, and the voters like it and re-elect them happily. You can't just will culture to change.

Tyler Cowen knows about rent seeking and Ricardo. He's not writing an encyclopedia article on the topic of rising housing costs though, he's writing a short piece for a broad audience about the demand side factors that might stabilize the price of housing in the long run, given (what we all take for granted) a more or less fixed supply.

I realize that he knows about rent seeking and Ricardo. He was addressing the issue of high housing costs and the question to ask is, why didn't he address the solution which is to reverse the rent-seeking that benefits wealthy landowners like President Trump over regular citizen renters and home buyers.

He should have written about this (article link was provided by another comment above) about how Japan solved the problem in Tokyo. We need a similar federal law in the US.

An article by Cowen that solves the problem by showing how successfully implemented the law was in Japan for Tokyo would have been far, far more interesting and implementable.

"The federal [Japanese] government recognized that these regulations were the problem, so in 2002, it passed the Urban Renaissance Law. The law stripped municipalities of the ability to control private property."

https://www.forbes.com/sites/scottbeyer/2016/08/12/tokyos-af...

It isn't a market failure if it is a result of regulation

There are laws and regulation that protect people from harm, e.g. product safety, physician licensing, FDA drug approvals, food inspections, etc.

Then there are regulations that help special interests get an unearned portion of wealth. That would include these landowners benefiting from zoning density restrictions or in NYC before Uber/Lyft came along, the artificial restriction of 13,000 taxi medallions for a population of 8.5 million.

Gotta agree with you there. Market failures refer to failure in a free market, or some problem caused by some market being too free.

Regulation failures are problems caused by bad/too much/too little regulation. In this sense, regulation failure can sometimes overlap with market failures.

I like how you managed to throw in a blow on Trump there, nice!

I love how many of the very people who claim to be critical of Trump and his wealth are the very people who help support zoning density restrictions that have made him far, far wealthier than he would otherwise be. If they started caring for regular people instead of wealthy people like President Trump then there would be more, affordable housing, and President Trump would not benefit from "rent-seeking".

It's one thing to support laws and regulations that happen to benefit Trump, it's another to want him to be the leader of your country.

> "It's one thing to support laws and regulations that happen to benefit Trump,"

But these left-leaning people claim they want to help the working class and others and are worried about inequality, yet they are the major cause of the inequality by making housing unaffordable through rent-seeking which benefits President Trump instead. In other words, they say one thing that they are for addressing the ills of inequality and instead support a policy that creates more inequality and benefits the very wealthy whom, in words only but not in deeds, criticize.

If they truly cared about inequality as they claim, they would reverse the unfair rent-seeking zoning density restriction laws.

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