I suppose it means that—assuming infinite flexibility of humans—as long as the life at some place is better than at other places, people will keep moving there. (Here, “better” includes quality of living, costs, job opportunities, etc.) The movement will only stop when the balance is achieved, that is, each place is equally good. Or when there are artificial barriers.
In other words, imagine Bay Area with cheap rents, and ask yourself why wouldn’t at least 5% of USA move there.
Currently the answer is: because they couldn’t afford the rent, or at least their potential income minus the rent isn’t worth moving there. There are many potential answers for the future, but many of them would also apply to people already living there, such as you. (For example: collapse of transit, or high crime.)
I would expect that getting rents down would generally let people to move from rural areas into cities, and within cities into denser downtown areas, because high rents currently keep people out. But:
Some people don’t want to live in cities. Proximity to nature, not wanting to have to worry about neighbors, liking having lots of open space, working in farming or another fundamentally rural occupation, etc.
Different industries are big in different cities. Software in SF, TV in LA, finance in NYC, commodities in Chicago, biotech in Boston, insurance in Hartford, etc. Depending on what sort of work you want to do different cities make sense. Similar patterns apply for subcultures.
Some people have strong roots and wouldn’t move just for better economic opportunity. A big reason I’m in Boston!
Cities compete, and the fastest growing cities are ones that are trying to make themselves more desirable.
So “the movement will only stop when the balance is achieved, that is, each place is equally good” doesn’t mean “everywhere is terrible” but instead “everywhere keeps getting better, for the people who decide to live there”.
Overall, though, since the Bay Area already has 2.4% of the US population, getting to 5% with lower rents sounds pretty reasonable. They would need to build better transit in the areas that became dense, but they would have the tax revenues to support it.
I mean something like: in the equilibrium, all consumer surplus is extracted by rents.
I’m saying “on aggregate”, because it might often not be the case in individual cases; landlords are not capable of doing perfect price discrimination on individual basis, only at the level of something like neighborhoods, roughly speaking (people sort themselves into neighborhoods by income, so the landlords can price-discriminate based on “how affluent a neighborhood you wanna live in”; people also want as short commutes as possible, so you can price-discriminate based on the distance to the nearest megalopolis).
This is made very complicated by the distinction between land and land improvements, i.e. the bare plot of land itself, on one hand, and the infrastructure and buldings built on top of it, on the other. When I talk about lands and rents, I talk about the former. The supply of land improvements is somewhat elastic (you can build more floors); the supply of land itself is absolutely inelastic.
I unfortunately don’t wanna go into the mechanism by which consumer surplus is actually extracted by rents, because I already spent some time thinking and writing this comment and I originally wanted to do something else with my Saturday.
Viliam hinted at the mechanism: land is a positional good, so, to quote him, “as long as the life at some place is better than at other places, people will keep moving there.”
Compare with other positional goods: e.g. all sports clubs’ profits will eventually be extracted by players and their agents, unless a league instantiates a wage cap, precisely because players are a positional good: you don’t care how good your players are, you only care how good they are in comparison to other teams’ players.
In the same vein, you don’t care where you live, you care how far you are from the center of gravity of where other people live (roughly speaking).
Very few people rent bare plots of land. What’s rented (and what was referred to in the OP as rent)lot of land itself, on one hand, and the infrastructure and buldings built on top of it, on the
It seems like you are withdrawing to the motte. Very, few people rent bare plots of land. What’s rented (and what was referred to in the OP as rent) is rather floor space in apartments.
Why are you modeling land as a pure positional good, or even mostly positional? My goal isn’t to be closer to the middle of things than other people, I want to be near my friends and near my work. What’s positional about that, given that we can build up?
Right, but it doesn’t matter whether I’m closer than others (positional good) but whether I’m close enough that I can easily get between them (absolute good). If the world were a chessboard and only one person could live on each square then these would be the same, and it would turn into a positional good because of competition for desirable locations. But it isn’t, and we can build up enormously, which means lots of people can have a short commute and be near their friends.
What do you mean by “on aggregate paying through the nose”? That rents will always be high?
I suppose it means that—assuming infinite flexibility of humans—as long as the life at some place is better than at other places, people will keep moving there. (Here, “better” includes quality of living, costs, job opportunities, etc.) The movement will only stop when the balance is achieved, that is, each place is equally good. Or when there are artificial barriers.
In other words, imagine Bay Area with cheap rents, and ask yourself why wouldn’t at least 5% of USA move there.
Currently the answer is: because they couldn’t afford the rent, or at least their potential income minus the rent isn’t worth moving there. There are many potential answers for the future, but many of them would also apply to people already living there, such as you. (For example: collapse of transit, or high crime.)
I would expect that getting rents down would generally let people to move from rural areas into cities, and within cities into denser downtown areas, because high rents currently keep people out. But:
Some people don’t want to live in cities. Proximity to nature, not wanting to have to worry about neighbors, liking having lots of open space, working in farming or another fundamentally rural occupation, etc.
Different industries are big in different cities. Software in SF, TV in LA, finance in NYC, commodities in Chicago, biotech in Boston, insurance in Hartford, etc. Depending on what sort of work you want to do different cities make sense. Similar patterns apply for subcultures.
Some people have strong roots and wouldn’t move just for better economic opportunity. A big reason I’m in Boston!
Cities compete, and the fastest growing cities are ones that are trying to make themselves more desirable.
So “the movement will only stop when the balance is achieved, that is, each place is equally good” doesn’t mean “everywhere is terrible” but instead “everywhere keeps getting better, for the people who decide to live there”.
Overall, though, since the Bay Area already has 2.4% of the US population, getting to 5% with lower rents sounds pretty reasonable. They would need to build better transit in the areas that became dense, but they would have the tax revenues to support it.
I mean something like: in the equilibrium, all consumer surplus is extracted by rents.
I’m saying “on aggregate”, because it might often not be the case in individual cases; landlords are not capable of doing perfect price discrimination on individual basis, only at the level of something like neighborhoods, roughly speaking (people sort themselves into neighborhoods by income, so the landlords can price-discriminate based on “how affluent a neighborhood you wanna live in”; people also want as short commutes as possible, so you can price-discriminate based on the distance to the nearest megalopolis).
This is made very complicated by the distinction between land and land improvements, i.e. the bare plot of land itself, on one hand, and the infrastructure and buldings built on top of it, on the other. When I talk about lands and rents, I talk about the former. The supply of land improvements is somewhat elastic (you can build more floors); the supply of land itself is absolutely inelastic.
I unfortunately don’t wanna go into the mechanism by which consumer surplus is actually extracted by rents, because I already spent some time thinking and writing this comment and I originally wanted to do something else with my Saturday.
Viliam hinted at the mechanism: land is a positional good, so, to quote him, “as long as the life at some place is better than at other places, people will keep moving there.”
Compare with other positional goods: e.g. all sports clubs’ profits will eventually be extracted by players and their agents, unless a league instantiates a wage cap, precisely because players are a positional good: you don’t care how good your players are, you only care how good they are in comparison to other teams’ players.
In the same vein, you don’t care where you live, you care how far you are from the center of gravity of where other people live (roughly speaking).
It seems like you are withdrawing to the motte. Very, few people rent bare plots of land. What’s rented (and what was referred to in the OP as rent) is rather floor space in apartments.
Why are you modeling land as a pure positional good, or even mostly positional? My goal isn’t to be closer to the middle of things than other people, I want to be near my friends and near my work. What’s positional about that, given that we can build up?
What exactly do you think “things” are, if not your friends and your work?
Everyone wants to be close to their friends and their work; that’s precisely the “gravity” that moses was talking about.
Right, but it doesn’t matter whether I’m closer than others (positional good) but whether I’m close enough that I can easily get between them (absolute good). If the world were a chessboard and only one person could live on each square then these would be the same, and it would turn into a positional good because of competition for desirable locations. But it isn’t, and we can build up enormously, which means lots of people can have a short commute and be near their friends.