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Comment by bigyikes | Hacker News Reader

I’ve had this thought floating around in my head for a while, and it seems wrong, but I’m not completely sure why. I’m hoping someone more knowledgeable might be able to set me straight.

Prices on the coasts — like 5k rent — are astronomically high compared to prices in, say, the midwest. This shocks many people.

You could easily make the same comparison between the midwest and some non-developed nation. The difference is, nobody is shocked about how prices are higher in the USA midwest compared to an arbitrary less-developed country. Why is that exactly?

I loathe these insane prices, but my question is: could it be reasonable to view these high prices as a /good/ thing, as a sign of development?

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Short answer: No.

The problem with these insane prices isn't really that you have disparity within the same country, but that a significant amount of people in these places cannot afford to live in there. You can't have a restaurant because you need to hire waiters but you can't pay waiters enough for them to pay the rent. So your service industry is disrupted or alternatively: people need to commute 1 or 2 hours to get to these jobs.

The reason it is not shocking that people in the midwest pay more than people in developed countries is because in the midwest most people have a relatively better life than most people in those developing countries. Whereas, say, a waiter living in San Francisco is not going to live a very different life from a waiter living in the Midwest who will, in turn, be living a much better life than a waiter in a developing nation.

So I think people are shocked because they realise their quality of life is not so different but there is a huge disparity in prices. Same country, similar quality of life, hugely different prices? This is definitely an anomaly!

> The problem with these insane prices isn't really that you have disparity within the same country, but that a significant amount of people in these places cannot afford to live in there. You can't have a restaurant because you need to hire waiters but you can't pay waiters enough for them to pay the rent. So your service industry is disrupted or alternatively: people need to commute 1 or 2 hours to get to these jobs.

Haven't you described a problem that fixes itself through market forces? Restaurant waiters move to other cities, restaurants (and millions of other businesses) close, city becomes less desirable, rents go down.

The mere existence of a negative feedback mechanism does not imply a "fix". Rather depending on the magnitude, momentum, and damping, can result in many different system behaviors, including increasing oscillation. Meanwhile the current conditions cause actual damage to people's lives, even if they may converge in the future. So no, market fatalism is not very insightful here.

On a long enough timeline, maybe. But societies can't wait the 5-10-20-30 years it might take the market to correct itself. That's one dimensional thinking. Political and social destabilization brought on by market inefficiencies can create dangerous situations that are deep and long-lasting.

People often want/need to live near their friends and family, which makes them irrational from the market's point of view. Treating location as fungible gives them cheaper housing, but isolation.

Wanting to live near friends and family is rational. It all gets fed into the utility function that tells people if something is worth paying for or not, and people are what the market is composed of.

Only if the housing market is functional and responsive, ie high rents are only driven by "desirability" and so demand can adjust quickly.

The reality is that trends in the rental market are very slow to reverse outside of the collapse of a bubble like in 2008. At the moment it is completely dysfunctional since nearly every city in the Anglophone world is experiencing both a housing shortage and massive speculation in the housing market.

Additionally peoples' housing decisions are much less fluid than their decisions on to say buy a particular product - the entire basis of their financial security is tied up in where they live. Just because rent is lower in a less desirable city that's no help if they can't find a decent job in the less desirable city, or if due to high costs where they already live they don't have the liquidity to finance a major move.

And that's not even getting into the social cost - uprooting yourself from your home can cost you resources that can't easily replaced, such as a social safety net in the form of family and close friends, potentially providing things like free childcare, help in emergencies, rides to work if you can't drive/can't afford a car, interest-free loans etc etc. Because of all this people will stick with unbearable rents until long after they stop being able to comfortably afford them.

Housing responds to market forces, but since the supplier has a far more captive market than most industries the time horizon for changes is very slow. It doesn't really help people to claim that the market will sort itself out so just put up with this misery for 10-20 years - especially when in the past 10 years the market has only become if anything more dysfunctional.

There's probably a lot of reasons building up to this. I suspect that a lot of this comes from the constant reinforcement of equality as broad concept. The idea that all people should have equal opportunities seems to have been perverted by some into the idea that all people should be the same. Then there's the idea of america as "one nation" instead of a massive collection of communities. Throw in the american need to spread out, and you start to get this culture that is far more homogenous than in the patchwork of cultures of europe and africa.

So with that backdrop, it seems the problem is people who think they're the same get shocked to find out they're not.

I think the comparison with other places makes no sense if you compare nominal prices. What I think you have to compare is (among other things) how much of your salary you spend on rent. Yeah, a non-developed nation you may get a 3 room apartment for 400 USD - but your salary may be not higher than 1k USD per month.

If the average salary in Manhattan would be 300k per year I think no one would care. But it is not.

Can you clarify what you mean by development? As far as the apartments themselves, they can range from newly developed, to newly renovated, to very old and needing renovations. I figured the apartments along the coasts, and in particular the Manhattan area are quite old.

I do think that development on a global scale has given people the ability to move to places like Manhattan, and so development outside, as well as within could create the demand for higher rent.

Affordable apartments may not be developing at high enough rate to keep up with demand - but in a place like Manhattan, surely it is difficult to develop affordable housing.

One of my favourite time-sucks is watching property/design videos on YouTube. I'm constantly amazed at how expensive it is for shitty accommodation in New York. London is expensive, but the quality is (at least in my experience) far better for the money, even at the cheaper end.

Well that's a scary thought! It's been quite a while since I lived in London, but terrace houses barely converted into flats is my overriding memory.

Yes and no. They are a sign of development, in that prices are high because there are enough people in the market with enough money to sustain these prices. Its a bad thing however because it means there isn't enough supply to keep prices reasonable for the actual real population versus just the top echelon that can afford these inflated rates on the shortened supply. The sticker shock doesn't matter as much as the relative buying power of hourly wages.

I think it’s the phrase “less developed country.” The US midwest and the US coast at the same, developed country.

Sure, they’re long distance apart, and drastically different, but that’s not on people’s minds.

I would disagree with you there. There are many areas of the US that resemble an undeveloped country.

> You could easily make the same comparison between the midwest and some non-developed nation. The difference is, nobody is shocked about how prices are higher in the USA midwest compared to an arbitrary less-developed country. Why is that exactly?

Because there's no freedom of movement, legal or cultural, between the midwest and the large coastal US cities.

Typo, of course I meant there IS freedom of movement within the US but not across borders.

I think the best comparison would be to other developed countries with strong economic growth

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