Eg, rents in San Francisco would almost instantly rise by the amount of the UBI; no janitors in the Bay Area would be better off as a result.
Side point, but this… doesn’t seem to comply with basic supply and demand?
The amount by which the rents would rise would likely depend very heavily on the ratio of price elasticities of supply & demand[1], and in cases where we have neither a perfectly elastic supply[2] nor a perfectly inelastic demand[3], increasing the income of individuals (which could function as, say, an indirect subsidy of sorts for them to pay housing costs) predictably would not lead to a situation where rents instantly[4] rise by that amount such that no poor person is made better off.
Which we do not, in real life, as we can see, for example, by the fact that construction of new buildings is heavily dependent on expectations about future rent cash flows, so policies like rent control (which reduce that expectation) predictably cause landlords to significantly reduce rental housing supply. More directly, see this 2009 report by Rand that tries to estimate it numerically, as well as CEPR’s statement that the 10th-90th percentiles of the numerical elasticity were 0.4 and 2.6, respectively, in the 2012-2017 period.
Note that “housing” alone is made up of many inhomogeneous goods, there is always the possibility of living in a different city, etc. Numerical estimates for demand elasticity seem relatively more difficult to find by my cursory internet search; this 1980 paper puts price elasticity of demand for housing at between −0.4 and −0.6.
Also note that the short-run supply elasticity of housing is predictably smaller than the long-run supply elasticity, which only further decreases the percentage of the UBI that is “wasted” on increased rent (this is not unique to housing, and is in fact true for most goods or services).
This is why San Francisco was chosen as the example—at least over the last decade or so it has been one of the most inelastic housing supplies in the U.S.
You are therefore exactly correct: it does not comply with basic supply and demand. This is because basic supply and demand usually do not apply for housing in American cities due to legal constraints on supply, and subsidies for demand.
But San Francisco is also pretty unusual, and only a small fraction of the world lives there. The amount of new construction in the United States is not flat over time. It responds to prices, like in most other markets. And in fact, on the whole, the majority of Americans likely have more and higher-quality housing than their grandparents did at the same age, including most poor people. This is significant material progress despite the supply restrictions (which I fully concede are real), and it’s similar to, although smaller in size than what happened with clothing and smartphones.
Housing supply is elastic, land supply is not. Rent from “house-owner” to renter may have a functioning supply curve, but ground rent sucks up all UBI due to its perfectly inelastic supply curve.
QoL has of course risen despite this, because rent can only demand the different between the worst available rent-free location and the location at hand—as technology improves, the productivity at the worst rent-free location (the margin of production) rises, and what people get to keep post-rent rises.
UBI is simply a handout to rentiers. Progress that improves the margin of production raises the floor of poverty.
QoL has of course risen despite this, because rent can only demand the different between the worst available rent-free location and the location at hand—as technology improves, the productivity at the worst rent-free location (the margin of production) rises, and what people get to keep post-rent rises.
Your comment is very confusing to me, as it reads like a sort of “productivity theory of value” that doesn’t align either with basic microeconomic theory or with empirical data that has been gathered on this question.
Both demand and supply straightforwardly affect housing rent; it is not just “productivity” that determines what the cost of physically residing in a certain area will be. For example, if a different city close by suddenly becomes much more attractive, demand will (at least in the short-term) slightly go down in the initial city, which will push rent down a bit, even though the productivity in this city has stayed the same. It’s the reverse of Baumol’s cost disease: instead of wages in fields that haven’t experienced increased productivity nonetheless going up because competing jobs are getting more enticing and well-paid (and thus employers need to increase wages to induce marginal workers to stay instead of moving over to those fields), you have a situation where the rent in a city goes down despite nothing happening in the city itself, because landlords have to compete to some extent not only with other landlords in the city but also with other, nearby cities.
Even in a hypothetical word that looked like ours except there was no technological improvement, rents would still change over time because of demand & supply factors, governmental regulation and deregulation, etc.
I also don’t understand what “worst rent-free location” refers to? Do you mean homelessness here, or what? For most people, there is no way to obtain a house in a rent-free manner (given that mortgage payments, for all useful purposes here, can be modeled as equivalent to monthly rent).
ground rent sucks up all UBI due to its perfectly inelastic supply curve
(Emphasis mine) I’m not sure what you mean by this, honestly.
If we give all renters in a city $10k (say, by a tax cut, which is mostly functionally equivalent to UBI anyway, at least for our purposes here), are you predicting that this will not actually result in them retaining more dollars in their pockets after paying rent to their landlords? This is definitely not correct, and is what I was getting at in my initial comment: the elasticities, empirically measured, are not such that the entirety of the UBI is eaten up by the landlords (or whoever ultimately benefits through profit from “unearned value”).
And I’m not sure what the housing vs ground distinction is meant to do here, given that… renters obtain value as a result of this arrangement (in the fact that they retain more money than they counterfactually would have if the policy had not been implemented), so it is not the case that rentiers are the only ones who profit from this outcome. So I don’t understand what “UBI is simply a handout to rentiers” means, given all of the above...
I’m simply paraphrasing Ricardo’s law of rent. It’s pretty straightforward microeconomics.
Worst rent free location just refers to the next-best-alternative, so yes, homelessness, or subsistence farming in a marginal location, etc.
Both demand and supply straightforwardly affect housing rent; it is not just “productivity” that determines what the cost of physically residing in a certain area will be. For example, if a different city close by suddenly becomes much more attractive, demand will (at least in the short-term) slightly go down in the initial city, which will push rent down a bit, even though the productivity in this city has stayed the same.
Sure, I already said housing is subject to supply and demand.
Even in a hypothetical word that looked like ours except there was no technological improvement, rents would still change over time because of demand & supply factors, governmental regulation and deregulation, etc.
Obviously true. And?
If we give all renters in a city $10k (say, by a tax cut, which is mostly functionally equivalent to UBI anyway, at least for our purposes here), are you predicting that this will not actually result in them retaining more dollars in their pockets after paying rent to their landlords?
Landlords will raise prices until the value of living in that city with $10k tax cut = the value of living in the next city with no tax cut, modulo friction. People will want to move into the tax cut city, raising rents.
Local cafes, bakeries and hair salons etc. will raise their prices a commensurate amount, and the improved “productivity” of these local businesses will result in an increase in competition for those locations, raising rents for businesses as well.
The nominal incomes of renters and local business owners increase, but in the end the rentiers benefit.
The nominal incomes of renters and local business owners increase, but in the end the rentiers benefit.
Rentiers may benefit, but they need not be the only ones who benefit. That was the essence of my comment above, and why I objected to the statements above that “all UBI” is sucked up by rent and that “UBI is simply a handout to rentiers.” The nominal incomes of non-rentiers indeed increase, and I claim that for some of them, the real income increases as well.
I’m not sure if there is any leftover disagreement here?
Side point, but this… doesn’t seem to comply with basic supply and demand?
The amount by which the rents would rise would likely depend very heavily on the ratio of price elasticities of supply & demand[1], and in cases where we have neither a perfectly elastic supply[2] nor a perfectly inelastic demand[3], increasing the income of individuals (which could function as, say, an indirect subsidy of sorts for them to pay housing costs) predictably would not lead to a situation where rents instantly[4] rise by that amount such that no poor person is made better off.
Which is borne out by empirical studies as well, see for example “Why is the rent so darn high?” and Matt Yglesias’s analysis here.
Which we do not, in real life, as we can see, for example, by the fact that construction of new buildings is heavily dependent on expectations about future rent cash flows, so policies like rent control (which reduce that expectation) predictably cause landlords to significantly reduce rental housing supply. More directly, see this 2009 report by Rand that tries to estimate it numerically, as well as CEPR’s statement that the 10th-90th percentiles of the numerical elasticity were 0.4 and 2.6, respectively, in the 2012-2017 period.
Note that “housing” alone is made up of many inhomogeneous goods, there is always the possibility of living in a different city, etc. Numerical estimates for demand elasticity seem relatively more difficult to find by my cursory internet search; this 1980 paper puts price elasticity of demand for housing at between −0.4 and −0.6.
Also note that the short-run supply elasticity of housing is predictably smaller than the long-run supply elasticity, which only further decreases the percentage of the UBI that is “wasted” on increased rent (this is not unique to housing, and is in fact true for most goods or services).
This is why San Francisco was chosen as the example—at least over the last decade or so it has been one of the most inelastic housing supplies in the U.S.
You are therefore exactly correct: it does not comply with basic supply and demand. This is because basic supply and demand usually do not apply for housing in American cities due to legal constraints on supply, and subsidies for demand.
But San Francisco is also pretty unusual, and only a small fraction of the world lives there. The amount of new construction in the United States is not flat over time. It responds to prices, like in most other markets. And in fact, on the whole, the majority of Americans likely have more and higher-quality housing than their grandparents did at the same age, including most poor people. This is significant material progress despite the supply restrictions (which I fully concede are real), and it’s similar to, although smaller in size than what happened with clothing and smartphones.
Housing supply is elastic, land supply is not. Rent from “house-owner” to renter may have a functioning supply curve, but ground rent sucks up all UBI due to its perfectly inelastic supply curve.
QoL has of course risen despite this, because rent can only demand the different between the worst available rent-free location and the location at hand—as technology improves, the productivity at the worst rent-free location (the margin of production) rises, and what people get to keep post-rent rises.
UBI is simply a handout to rentiers. Progress that improves the margin of production raises the floor of poverty.
Your comment is very confusing to me, as it reads like a sort of “productivity theory of value” that doesn’t align either with basic microeconomic theory or with empirical data that has been gathered on this question.
Both demand and supply straightforwardly affect housing rent; it is not just “productivity” that determines what the cost of physically residing in a certain area will be. For example, if a different city close by suddenly becomes much more attractive, demand will (at least in the short-term) slightly go down in the initial city, which will push rent down a bit, even though the productivity in this city has stayed the same. It’s the reverse of Baumol’s cost disease: instead of wages in fields that haven’t experienced increased productivity nonetheless going up because competing jobs are getting more enticing and well-paid (and thus employers need to increase wages to induce marginal workers to stay instead of moving over to those fields), you have a situation where the rent in a city goes down despite nothing happening in the city itself, because landlords have to compete to some extent not only with other landlords in the city but also with other, nearby cities.
Even in a hypothetical word that looked like ours except there was no technological improvement, rents would still change over time because of demand & supply factors, governmental regulation and deregulation, etc.
I also don’t understand what “worst rent-free location” refers to? Do you mean homelessness here, or what? For most people, there is no way to obtain a house in a rent-free manner (given that mortgage payments, for all useful purposes here, can be modeled as equivalent to monthly rent).
(Emphasis mine) I’m not sure what you mean by this, honestly.
If we give all renters in a city $10k (say, by a tax cut, which is mostly functionally equivalent to UBI anyway, at least for our purposes here), are you predicting that this will not actually result in them retaining more dollars in their pockets after paying rent to their landlords? This is definitely not correct, and is what I was getting at in my initial comment: the elasticities, empirically measured, are not such that the entirety of the UBI is eaten up by the landlords (or whoever ultimately benefits through profit from “unearned value”).
And I’m not sure what the housing vs ground distinction is meant to do here, given that… renters obtain value as a result of this arrangement (in the fact that they retain more money than they counterfactually would have if the policy had not been implemented), so it is not the case that rentiers are the only ones who profit from this outcome. So I don’t understand what “UBI is simply a handout to rentiers” means, given all of the above...
I’m simply paraphrasing Ricardo’s law of rent. It’s pretty straightforward microeconomics.
Worst rent free location just refers to the next-best-alternative, so yes, homelessness, or subsistence farming in a marginal location, etc.
Sure, I already said housing is subject to supply and demand.
Obviously true. And?
Landlords will raise prices until the value of living in that city with $10k tax cut = the value of living in the next city with no tax cut, modulo friction. People will want to move into the tax cut city, raising rents.
Local cafes, bakeries and hair salons etc. will raise their prices a commensurate amount, and the improved “productivity” of these local businesses will result in an increase in competition for those locations, raising rents for businesses as well.
The nominal incomes of renters and local business owners increase, but in the end the rentiers benefit.
Rentiers may benefit, but they need not be the only ones who benefit. That was the essence of my comment above, and why I objected to the statements above that “all UBI” is sucked up by rent and that “UBI is simply a handout to rentiers.” The nominal incomes of non-rentiers indeed increase, and I claim that for some of them, the real income increases as well.
I’m not sure if there is any leftover disagreement here?