Tabarrok doesn’t cover housing in his book, but home prices have also been rising since the 1970’s and I’ve seen the Baumol effect deployed to explain rising housing costs as well. “Land is the one thing they’re not making any more of” — for the most part, technological improvements don’t increase the quantity of livable land, so if technology makes some sectors more efficient and drives costs down, land will become relatively more expensive.
This seems wrong. First of all, there’s plenty of unused land; secondly, technological improvements can, obviously, do quite a lot to make unlivable land livable.
It seems like the thing that they’re actually not making more of is not “livable land” but “livable land that is in New York City / San Francisco / Seattle / other commercial/tech/etc. hubs”. Which is not quite the same thing.
EDIT: I see this is partially addressed later in the post, but it’s important to note that the thing I am alluding to is the critical, valuable thing in the housing situation, so even though indeed it’s untrue that we can’t make more livable land, the actual valuable good in housing (i.e., housing in a particular place) is indeed limited, so Baumol applies (insofar as you take the Baumol explanation seriously in the first place, of course).
It seems like there are lots of other important facts about why housing is more expensive:
There’s roughly twice as many people in the U.S. today than there were in 1950.
The ‘cost floor’, due to e.g. building codes, permitting, etc., is much higher.
Standards and preferences regarding sharing rooms and entire ‘units’ are much higher.
I suspect some significant component is in essence the Baumol effect, i.e. because lots of things are cheaper, e.g. food and clothing, people are willing and able to spend more bidding up the price of housing in particularly desirable locations.
Perhaps a tangent, but—
This seems wrong. First of all, there’s plenty of unused land; secondly, technological improvements can, obviously, do quite a lot to make unlivable land livable.
It seems like the thing that they’re actually not making more of is not “livable land” but “livable land that is in New York City / San Francisco / Seattle / other commercial/tech/etc. hubs”. Which is not quite the same thing.
EDIT: I see this is partially addressed later in the post, but it’s important to note that the thing I am alluding to is the critical, valuable thing in the housing situation, so even though indeed it’s untrue that we can’t make more livable land, the actual valuable good in housing (i.e., housing in a particular place) is indeed limited, so Baumol applies (insofar as you take the Baumol explanation seriously in the first place, of course).
It seems like there are lots of other important facts about why housing is more expensive:
There’s roughly twice as many people in the U.S. today than there were in 1950.
The ‘cost floor’, due to e.g. building codes, permitting, etc., is much higher.
Standards and preferences regarding sharing rooms and entire ‘units’ are much higher.
I suspect some significant component is in essence the Baumol effect, i.e. because lots of things are cheaper, e.g. food and clothing, people are willing and able to spend more bidding up the price of housing in particularly desirable locations.