The price in NYC is set by the equilibrium of people coming and leaving. Building more in NYC doesn’t mean the price goes down any significant amount.
In Tulsa, what you see before price decreases is new construction completely halting. Prices get pinned at the cost of new construction even when there’s very little.
Here’s the basic sequence:
More construction starts in NYC. (NYC population has dropped recently, but we’re using it as a standin for “all 1st-tier cities”)
Adam works in Tulsa for MegaCorp, which has headquarters in NYC. With the new construction happening, Adam’s boss decides to move Adam to NYC so he’s easier to manage, or maybe his whole department moves to NYC so his boss can move to NYC and be closer to executives. Adam doesn’t want to move but has little choice. (Alternatively, Adam loses his job and finds that such jobs have moved from Tulsa to NYC.)
Adam’s house in Tulsa goes up for sale, which reduces construction in Tulsa by 1 house. Adam had a good job, and with him leaving the average income in Tulsa goes down.
Why didn’t Adam’s bosses move him to NYC before the new construction? Because, I assume, the bosses knew Adam and his colleagues wouldn’t move because rent is so expensive. Or, which amounts to the same thing, they knew they couldn’t attract enough talent in NYC because of the high housing prices.
This implies Adam and his colleagues DO have a choice. It’s just that the new, lower housing prices in NYC provide enough incentive to make the move that Adam chooses to make the move, although perhaps reluctantly.
It seems that your argument, therefore, depends on housing prices being lowered in NYC. Otherwise, why wait for new housing before making the move?
You’re assuming a perfectly liquid market here. There can be a lot of friction when trying to move in a bunch of people or buy a bunch of office space in one place. New construction can avoid that issue.
If there is no friction, and things are perfectly liquid, then the amount of price change required to cause big moves is very small.
Also, if income is lowered in Tulsa, housing prices must drop, because you have fewer dollars chasing the same amount of housing.
Perhaps your argument is that, with lots of new housing built in NYC, prices drop in NYC and Tulsa, but consumers of housing are not necessarily better off because (for instance) they might be “forced” to move from Tulsa to NYC, making them less happy than they would have been otherwise, despite the lower housing prices in both cities.
But that’s a completely different argument.
I may have erected a straw man here. But to that argument I would respond by noting that any kind of change makes some people worse off and some people better off, but market-based change almost always (in theory) results in more positives than negatives. The drop in price of word processors means that Adam may lose his job at the typewriter factory, but economic theory says that in the absence of anything unusual, the change is a benefit to the world as a whole.
This is especially true when changes are an increase in the abundance of a beneficial consumer good, like housing space.
Perhaps your argument is that, with lots of new housing built in NYC, prices drop in NYC and Tulsa, but consumers of housing are not necessarily better off because (for instance) they might be “forced” to move from Tulsa to NYC, making them less happy than they would have been otherwise, despite the lower housing prices in both cities.
But that’s a completely different argument.
That is my argument. That’s the whole point! I just also don’t think that it means prices necessarily go down in Tulsa (because people leaving for NYC shows up mainly as less construction, and prices in Tulsa are pinned to construction costs there) or necessarily go down significantly in NYC (because the price changes involved may be very small, or maybe there’s just reduced friction for companies moving because of new construction rather than an actual price decrease).
The price in NYC is set by the equilibrium of people coming and leaving. Building more in NYC doesn’t mean the price goes down any significant amount.
In Tulsa, what you see before price decreases is new construction completely halting. Prices get pinned at the cost of new construction even when there’s very little.
Here’s the basic sequence:
More construction starts in NYC. (NYC population has dropped recently, but we’re using it as a standin for “all 1st-tier cities”)
Adam works in Tulsa for MegaCorp, which has headquarters in NYC. With the new construction happening, Adam’s boss decides to move Adam to NYC so he’s easier to manage, or maybe his whole department moves to NYC so his boss can move to NYC and be closer to executives. Adam doesn’t want to move but has little choice. (Alternatively, Adam loses his job and finds that such jobs have moved from Tulsa to NYC.)
Adam’s house in Tulsa goes up for sale, which reduces construction in Tulsa by 1 house. Adam had a good job, and with him leaving the average income in Tulsa goes down.
Why didn’t Adam’s bosses move him to NYC before the new construction? Because, I assume, the bosses knew Adam and his colleagues wouldn’t move because rent is so expensive. Or, which amounts to the same thing, they knew they couldn’t attract enough talent in NYC because of the high housing prices.
This implies Adam and his colleagues DO have a choice. It’s just that the new, lower housing prices in NYC provide enough incentive to make the move that Adam chooses to make the move, although perhaps reluctantly.
It seems that your argument, therefore, depends on housing prices being lowered in NYC. Otherwise, why wait for new housing before making the move?
You’re assuming a perfectly liquid market here. There can be a lot of friction when trying to move in a bunch of people or buy a bunch of office space in one place. New construction can avoid that issue.
If there is no friction, and things are perfectly liquid, then the amount of price change required to cause big moves is very small.
Also, if income is lowered in Tulsa, housing prices must drop, because you have fewer dollars chasing the same amount of housing.
Perhaps your argument is that, with lots of new housing built in NYC, prices drop in NYC and Tulsa, but consumers of housing are not necessarily better off because (for instance) they might be “forced” to move from Tulsa to NYC, making them less happy than they would have been otherwise, despite the lower housing prices in both cities.
But that’s a completely different argument.
I may have erected a straw man here. But to that argument I would respond by noting that any kind of change makes some people worse off and some people better off, but market-based change almost always (in theory) results in more positives than negatives. The drop in price of word processors means that Adam may lose his job at the typewriter factory, but economic theory says that in the absence of anything unusual, the change is a benefit to the world as a whole.
This is especially true when changes are an increase in the abundance of a beneficial consumer good, like housing space.
That is my argument. That’s the whole point! I just also don’t think that it means prices necessarily go down in Tulsa (because people leaving for NYC shows up mainly as less construction, and prices in Tulsa are pinned to construction costs there) or necessarily go down significantly in NYC (because the price changes involved may be very small, or maybe there’s just reduced friction for companies moving because of new construction rather than an actual price decrease).