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> Similarly, gentrification is about people wanting to pay higher rent to live in a nicer neighborhood. Yes the landlords get more money... but the tenant gets the nicer neighborhood! (Or closer access to more jobs, or whatever.) That's the whole point. That's free trade.

You're misreading the argument. Yes, the renters want to pay more, but the problem is not that they want something nicer, it's that this system takes that natural desire for something better and combines it with NIMBY policies to skew it in a way that results in the centralization of financial capital in fewer people. This cripples the economy overall. The renters ARE getting capital in the form of nicer streets, better coffee, and a shorter commute, but you can't buy goods and services with nice streets, better coffee, and shorter commutes. You buy goods and services with money, but all the money is in the hands of the landlords. The economy does better with a wider distribution of resources because a wider distribution results in more spending on real goods and spending on real goods generates new wealth.

One person with a great deal of financial capital will buy real goods too, but only up to a point. After that, they will invest in markets, which create and destroy money seemingly at random. That's not a good place for most of our economic resources to be. It's better to have as much money being spent on real, useful products as possible in order to maximize economic stability long term.

> This cripples the economy overall.

It prevents San Fran from growing even faster than it already is, but it's not going backwards or anything. NIMBY is a separate problem.

> but you can't buy goods and services with nice streets, better coffee, and shorter commutes

That's turning it backwards. That's like saying you can't buy clothes with food or vice-versa. The streets, coffee and commutes already are the goods and services which people, on the whole, desire (even if some individuals don't).

Complaining that money is in the hands of landlords is no different from complaining it's in the hands of Starbucks shareholders. Money doesn't disappear... when landlords receive higher rent, that money is either being re-invested or spent on "real, useful products" in the end.

It cripples the economy overall.

https://www.nytimes.com/2017/09/06/opinion/housing-regulatio...

It means the economy doesn't grow as fast as it would otherwise. But again, it's not shrinking, or remaining stagnant.

If you call that "crippling" then keeping Central Park in Manhattan also cripples the economy, by preventing the economic growth that would result in replacing it with hundreds of blocks of offices and apartments.

Democratic communities are allowed to choose to slow down economic growth in order to preserve a more liveable physical environment.

Do you think preserving Central Park cripples the economy overall?

> when landlords receive higher rent, that money is either being re-invested or spent on "real, useful products" in the end.

This is simply untrue. Wealthy people do not eventually hit zero on their balance sheets, they typically keep the wealth, invest it by gambling in the market, and pass it on to their children who also do not spend it all. Spending is the key to economic growth and wealthy people absolutely do not spend as much as poorer people on real goods. The economy is always better off with wider distribution of wealth.

Can you expand on this? Wealthy people may not hit zero on their balance sheets, but isn't investing their capital in corporations a form of spending? That is, it enables the corporation to make capital expenditures to produce goods and services that will in turn be purchased. As long as wealthy people continue investing their capital, it should be healthy for the economy?

Yes, there is a balance that has to be struck between how much of your economy is investment and how much is spending on real goods because they are symbiotic. The problem is that when inequality rises too high, you end up with too much money being invested and those investment returns either slowing down or being artificially accelerated by gaming the market other ways (think the 2008 collapse).

> they typically keep the wealth

By investing it. And even the small proportion being kept as cash in the bank is invested by the bank.

> invest it by gambling in the market

If they're investing well, then they're directing that capital to productive uses, helping to produce goods that people buy. If they're investing badly by "gambling" then they will quickly lose their money to good investors who will direct it to productive uses, producing goods that people buy.

> and pass it on to their children

Regardless of your views on an inheritence tax (I personally favor it), what is not spent will continue to be invested, and the same arguments above apply.

This is all just Econ 101.

If every single dollar in the economy is invested and nothing is spent on real products, it's fake money and will inevitably collapse. Investment is not wrong in itself, but investment that is out of balance with spending on real goods is crippling because the real goods are where the rubber meets the road on investment returns. That is what happens when only a few people have all the cash and the rest are just barely getting by. You aren't maximizing growth and, as a consequence, your nation will lose power in the global market.

>Similarly, gentrification is about people wanting to pay higher rent to live in a nicer neighborhood.

Not the same people though. The quote from the article holds true for tenants who cant afford higher rents. Gentrification is generally a processes of displacement. There the old saying, that graffiti tags keep the rent low holds true.

Well of course. But that's just how the economy works.

Workers whose skills are no longer needed get let go and have to retrain to more productive skills. People who live in a neighborhood that gets too nice for them to afford wind up moving to a neighborhood they can afford.

If you argue that neighborhoods shouldn't improve because rents will go up, you're basically arguing against economic progress in general.

It's the same as saying a longer-lasting higher-quality product shouldn't be released because it will cost more than the lower-quality one.

But the point of the article is to break down the economic incentives. If you're personally disadvantaged by economic progress, you're incentivized to oppose it. I'd argue there's significant empirical evidence of this throughout history. The author posits that a large number of people in major cities are incentivized in this way, and while I don't know what the numbers are, I'd argue the theory is sound.

I'm yet to see any resident going to council meetings complaining that the streets are too clean, that public transportation is too good. I don't think most people connect the two things, plus a good chunk of the residents are property owners and would prefer the land value to go up. Finally, I also doubt that the improvement of public services is the main factor driving land prices up. For instance, here is Lisbon, it's mostly due to the foreigners buying up the stock (more than half the buyers are foreigners). I suspect the cause is similar in London.

> I'm yet to see any resident going to council meetings complaining that the streets are too clean, that public transportation is too good.

You'll see them complaining that rents are too high. And you'll see them objecting that better public transportation would "change the character of the neighbourhood" or whatever, which tends to be code for pushing up the rents.

> Finally, I also doubt that the improvement of public services is the main factor driving land prices up. For instance, here is Lisbon, it's mostly due to the foreigners buying up the stock (more than half the buyers are foreigners). I suspect the cause is similar in London.

No respectable economist agrees with you. Foreign investors are a bogeyman who are easy to blame for everything since they're not there to defend themselves.

The main factor is neither public services nor foreign investors.

It's economic growth. With the exception of retirement communities, it's locally-situated companies producing more value, hiring more employees, paying them more, which results in those employees wanting nicer homes, nicer neighborhoods and better public services. And why shouldn't they?

As someone who used to live in a house that got graffitied almost weekly, often with gang symbols, my sympathy for neighborhoods that are shitty because of the idiotic choices of their own residents is zero. Bring on the gentrification, the people are way nicer, and they actually make the city a better place to live.

You know, I think you can't really argue against gentrification _and_ against things like white flight. I suspect that most people actually feel like you do. What they don't want are the consequences of gentrification.

They want things to get better but to capture all the surplus from the betterness. So they want to continue to live where they did, have the streets be cleaner, have the stores be nicer but not have anything go up in price.

The economy isn't generally zero sum but some things definitely are close to zero sum.

> This is equivalent to saying, why would anyone want a Starbucks to open in their neighborhood when the value of the Starbucks is captured mainly by Starbucks shareholders? (Assume, for the sake of example, you like Starbucks, otherwise replace with whatever you like.)

> The answer, obviously, is that enough people find it to be a beneficial trade for both parties: people want to spend more money for better coffee. That's the invisible hand of the market that improves the sum of things.

But that's precisely the fact that Starbucks doesn't capture all or even most of the value they create. Trade is a wealth creation mechanism for both sides; Starbucks makes more money than it costs them to make coffee, but people get coffee that's worth more to them than they paid for it. If that wasn't the case - if Starbucks was charging such high prices that the coffee was only barely worth it to customers (perhaps because they were in a monopoly position) - then people wouldn't care whether a Starbucks opened near them or not.

> Similarly, gentrification is about people wanting to pay higher rent to live in a nicer neighborhood. Yes the landlords get more money... but the tenant gets the nicer neighborhood! (Or closer access to more jobs, or whatever.) That's the whole point. That's free trade.

But it isn't free trade, because there's no meaningful competition. No-one can build new buildings, so the landlords form a de facto cartel.

> because there's no meaningful competition.

That doesn't make any sense. Landlords are competing with each other for the best tenants (hence buildings being improved, amenities added, etc. as necessary), and tenants are choosing between landlords for the best buildings, between neighborhoods for the best quality of life, and between cities for the best value.

It's all competition. Just because there's a fixed supply of real estate doesn't mean there's no competition within it! One has nothing to do with the other.

If all buildings in a city were owned by the same single landlord, then it would be a different story. But that's obviously not the case.

I'm sure George explained it better, but I'll try.

Between-landlord competition will keep building prices at a level that's equal to the value they create, but it does nothing to ensure that the surplus gets fairly distributed. If you imagine a town of millers and bakers, as long as people can freely switch jobs then both will be equally profitable careers, because they'll have an equal share of the surplus. But if you only allow certain people to be millers then the price of flour will rise to the point where a baker can only just get by, while the millers will grow rich because they capture all of the surplus. There's no incentive for a landlord to sell at any less than the full value that their buildings are worth - and eventually the full value of all economic activity from people living in their buildings.

You're not defining what you think "fairly distributed" means, or why a landlord shouldn't benefit fully from a rise in real estate prices, any different from how a stockholder should benefit fully from a rise in stock prices.

Remember, owners are investors. Landlords gain when economic growth happens, the same way they lose when the economy shrinks. They put up capital and pay interest to invest in buildings they think will gain in value. And as prices go up, landlords pay higher property taxes too (and unlike capital gains, they can't wait until they sell).

But landlords aren't generally capturing the "full value of all economic activity" from people living in their buildings! That doesn't make any sense -- as people's salaries go up, they want nicer buildings/neighborhoods, but they also want nicer vacations, nicer food, nicer schooling for their kids, and so on. Landlords capture some of the economic growth of a region, but only to the extent that's what tenants prefer to spend their income on. The same way Starbucks captures growth, but only to the extent people want to spend their money on nicer coffee -- no more, no less.

The NIMBY/zoning conversation is a real one... and it's up to a community to decide democratically if they prefer less housing that is more expensive, or more construction for more affordable rents. But I don't see how there's anything more or less "fair" about one side or the other. It's a question of what the community wants. Manhattan would have cheaper housing if it replaced Central Park with blocks of high-rise buildings. That isn't a question about fairness, though.

There's no absolute "should" for what you're talking about, but the argument most economists would make is that most other tax schemes other than land value taxes are economically inefficient. One way this can manifest is deadweight loss.

This means that we misallocate resources.

For instance, consider a man who buys a lot of land next to city hall. He does nothing with it for years as the city grows up around him. His lot is now worth a lot of money and he pays very little for it yearly. One way of looking at this is in terms of how much it costs to provide him services: nothing, so his property tax is net positive. Another way is that there is a net loss to society because his property is not put to use in an economically efficient way.

Economically efficient does not necessarily mean developed, by the way. Golden Gate Park may be an economically efficient allocation of resources, though it is not used for built up space.

Housing prices are dictated solely by jobs. Look at a neighborhood in mountain view in the 80s and that same neighborhood today, I bet its the exact same single family houses, but the houses are an order of magnitude higher in price with zero upgrades. Not because the streets are swept more regularly or anything, but solely because tech companies are handing 22 year olds 6 figures and landlords smell blood in the water.

Now look at a place with lower playing jobs, like Cleveland, and the absolute opulence you can buy for 1m in Shaker Heights. Century old mansions are in play here. How much would this monster be in SV:

https://www.zillow.com/homedetails/2796-Eaton-Rd-Shaker-Heig...

Oh and note that its across the street from the train line that takes you straight to downtown, or the airport with a transfer. It's also less than a block from two huge parks and in one of the best school districts in the city. All of these huge quality of life perks going for it, and its still $88 a square foot because Cleveland does not have SV salaries.

>This is equivalent to saying, why would anyone want a Starbucks to open in their neighborhood when the value of the Starbucks is captured mainly by Starbucks shareholders? (Assume, for the sake of example, you like Starbucks, otherwise replace with whatever you like.)

Someone can quite rationally not want a Startbucks to replace Jamba Juice if they really like the latter but won't ever drink anything at the former. It's not sufficient justification to block the Starbucks, but it's not a bizarre or inconsistent or misinformed preference.

Similarly, if I don't care that much about the streets being nicer, but it comes with much more payments for my living space, then I can quite rationally not like the changes, even as I continue to grin and bear and pay the rent.

That's not a good enough reason to e.g. block people from moving in or imposing rent controls, but it's not a somehow fallacious model that you've become worse off and someone else has become better off.