Hacker News Reader

Comment by lubesGordi | Hacker News Reader

> "The stubborn unwillingness of incumbent homeowners in highly productive places—namely San Francisco and New York City, which are barely visible on the land-area map, but dominate the housing value map—is a huge drain on the nation’s economy." Are they trying to say that if people didn't have to spend as much on housing then there would be greater GDP?

View on HN

I think that if rents weren't such a drain, then yes, you could spend the money on other things and drive up GDP. SF currently has bad rents that are hurting the local economy. Money that just a few years ago was going to eating out, new cars, vacations, etc. is now going to a greedy landlord.

Monies spent on rent are already included in the GDP; they don't depress it.

I think he is alluding that high rent leads to wealth concentration. A lot of salaried people can invest a tiny bit in a much larger variety of interests than a few wealthy, or choose to work on something less profitable while still making rent. These investments by a lot of people will at some point lead to unexpected value creations that increase GDP. At least that is the tenet of a consumer and market economy.

Bingo.

How are the landlords greedy?

Housing is an input to productive, primary industries, and local politics conspire to keep the housing supply low and price high. This makes operating the productive industries more expensive. Similar to energy prices on manufacturing industries - high input cost -> lower productivity.

Best read about this: http://smile.amazon.com/The-Rent-Too-Damn-High-ebook/dp/B007...

No, it's saying that concentration of wealth geographically is harmful to economic development. The reality is though, that distributed wealth grows much more slowly.

That's not even close to what it's saying. It's saying people in places like SF don't want others coming in/and or want to maximize their home value, so they stop new housing being built, which keeps supply of housing down and thus less people can live in areas where there are lots of work opportunities.

You're thinking too narrowly. Your point is correct, but the broader point is that there should be those same work opportunities spread out around the country so that you don't have to move to SF or wherever to get a good job. That is what hurts the economy on a broader scale.

Employment is "sticky" in that personal mobility can't move as fast as capital mobility and that seems to have led to concentrations of wealth.

Network effects generally mean that the sort of work opportunities you see in SF or New York or Boston can't be spread around the country.

EDIT: Heck, industrial network effects of the sort you saw in Pittsburgh and Detroit and now see in Shenzhen can't be spread around either.

Right, and stated as much in my original reply.

The author might be making a valid point, but the visualization they chose doesn't match their thesis very well.

Think about it: if the homeowners in SF relent, approve massive housing projects, and decrease the average housing price of SF, then more people will now move into SF and its total real estate price (and hence the size of SF in their visualiztion) will increase.

Not necessarily. SF has a housing shortage. Remembering our basic supply & demand curves, price starts to go up exponentially when demand greatly outstrips supply.

Suppose you met the demand by doubling the supply. Suppose that takes you out of the exponential region, and housing costs drop fourfold. Overall, the market shrinks by half.

Maybe that's what they are saying. I could understand this wrong but high real estate prices locks up a lot of wealth in property where it isn't really doing any good. If all that wealth was able to circulate in the economy, it might increase growth.

You might argue that when I buy a house for $500k, the seller gets $500k, so where's the problem? But the seller needs somewhere to live too- they are probably putting that $500k into another house, commonly an even more expensive house.

That implies that all the cash is getting sunk into a new place, which is typically not the case.

Typically, I'm only putting 20% of that $500k down on the property. Now, to be fair, that $100k is effectively mothballed unless I pull it out with an equity loan or somesuch, but that's a far cry from freezing $500k.

Reply on news.ycombinator.com