It's hard to argue that the prices that exist in Palo Alto are "market rate" in this context, since supply has been so consistently restrained since the 1970s.
Is this an actual problem? Isn't this a desired effect, balancing out the prices, so that the subsidized area doesn't become a prohibitively expensive anomaly?
the cost to property owners who cannot realize the full potential of their assets,
I imagine the property owners in question are doing just fine (just being in the class "property owners" means they are better off than most in the area), again I don't think this is an actual problem.
I appreciate your comment, but it seems to be a lot of handwaving about a vague "destruction of wealth." What number and what type of people would benefit from deregulation/removing subsidies? Would it really be the people that are suffering and struggling? I'm not seeing it.
Frederic Bastiat wrote about this in 1850. It is a foundational concept of the Austrian school of economics. Reasonable people dispute classically liberal economics, but its been thoroughly studied. I'm not hand-waving. Yes, the concept of measuring the wealth that was destroyed seems "vague," that was precisely his point. If you're interested: https://en.wikisource.org/wiki/Essays_on_Political_Economy/T...
You haven't really demonstrated that it's worse than the alternative, let alone how or why. Of course there are unseen costs; there always are, with matters of public policy affecting so many people. I could say the same exact thing about the inverse situation of an unregulated free market - "there are unseen costs that are hard to measure." Is that a strong argument against it?
edit: In other words, how do you conclude that the costs that you describe outweigh the costs of people being pushed out of their homes, the cultural effects, etc? Ultimately it ends up as a subjective value judgment, there are too many factors and human emotions at play to be objective. I don't really believe in trickle-down economics or the magic ability of the free market to correct all social ills, I believe in directly helping those that need it most.
In some cases, "those who need it most" only need it because of the economic environment created by regulation. In many cases, "directly helping" may solve the short-term, immediate concerns of those housing/economically disadvantaged, but doesn't actually serve to fix the problem that's making things the way they are to begin with.
In SF, there's a lot of rhetoric around "market rate housing" and "affordable housing". Presenting it as a dichotomy as such ignores that there are things that could be done to make market rate housing the same price as affordable housing. There wouldn't be talk of "affordable" housing as a distinct thing if "market rate" wasn't so out of whack because of the complex economic and political incentives and setup in California, the Bay Area, and SF.
Another thing that I see frequently glossed over is that "market rate" isn't a single thing. It has different values based the actual quality of the property in question. I'd love to move into a better place at the same rent I'm paying now, because really, my current place is way overpriced considering the quality and I can afford to continue to pay the rate I'm paying. But it's not worth it for me to move because so many places are equal or less quality and equal or more in price. There are no better places coming on the market at this price point. If the economic and political climate was such that the market was able to provide an equal or greater quality place for equal or greater price, that would free up a lesser quality place (because I could move there) and reduce its price to a market rate based on its quality that someone with lesser means could then afford. The availability of residences is a significant contributor to the market rate for residences in SF, so much so that it dwarfs all other possible influences on the market rate.
That being said, I do believe that the market needs to be able to provide a wide range of quality — just building high end housing isn't going to be as fast or as solid of a fix as building housing for many different kinds of economic classes. This is part of the problem around mandates to build "affordable housing" or "subsidized housing" (usually as a percentage of total building): these are, by definition, below market rate, but someone is paying for the difference between "affordable" and "market". That spread needs to be reduced, rather than subsidized.
Agreed. In this case, the problem is that a lot of people with money want to live in SF now and there just aren't enough places to put them. I do agree with the consensus that the NIMBYs need to accept that and allow construction of more units, at all price points.
that would free up a lesser quality place (because I could move there) and reduce its price to a market rate based on its quality that someone with lesser means could then afford.
Maybe, but that is basically a trickle-down assumption. It's also possible that there is a near-inexhaustible supply of rich people who would buy a second or third or fourth home, or foreigners looking for pied-a-terres, and then this expensive low-density new construction has left everyone else exactly where they were, except market rates may have actually increased.
The reason I lean towards subsidized housing is because (yes, in the short term), it directly helps the people that are struggling, rather than relying on the playing out of complex economic theories that coincidentally give justification for rich people to not actually care about poor people ("just let us do our thing, and eventually it will work out for everyone else...we promise").
Invoking Reaganomics is a red-herring. It's used as a response to the kinds/quality of buildings built in the short term (or currently are being built) as if that's the only kind that need to or will be built (however, it is the only kind that is and will be built without policy change and getting rid of NIMBYism). That's not the case. As I said, there needs to be a glut of all kinds of buildings being built. There is no reason to build anything other than high end currently, because availability is limited.
The reason I lean towards subsidized housing is because (yes, in the short term), it directly helps the people that are struggling, rather than relying on the playing out of complex economic theories
This is not an either or proposition, however it is often presented as one (and you just did with the use of "rather"). It is possible to subsidize those who need it in the short term and open up the market for a wider range of building with effects to occur in the medium and long term. Both should be done. Once the market forces take effect, the subsidizes won't be as necessary. Or alternatively, if you're completely right that the market won't fix any of this, the subsidizes will already be in effect and useful and they can continue and we'll have a larger set of housing stock.
Supply and demand is not a "complex" economic theory, and presenting it as complex is disingenous. What we have now, with perverse incentives, taking everything to the voters with propositions at election time, NIMBYism, subsidizies, uninutitive zoning, is what is complex and leads to unintended consequences. Make no mistake: we are where we are now specifically because of decisions made over the last twenty years (although, one can argue that where we are now is exactly where NIMBYs want us to be).
Directly building more residences is not the only thing that can be done to lessen this pressure either. There are huge swatches of the city that are undesirable specifically because of lack of accessiblity and transportation. Public works projects that directly benefit all economic classes need to be considered, and perhaps forced through.
However, none of these things can be done overnight and if we were to start today on any of them we wouldn't see any significant movement for a few years and the end result for perhaps a decade. That's part of the problem too: there's a desire to see the effects immediately, but there is literally nothing that can have effect immediately. But doing what we're doing now, restrictions on building, moritoriums for research (which is really just a delaying tactic—I don't believe any "impact study" in California is a sincere concern for whatever is being studied), isn't helping anyone and only serves to push prices higher in the shorter term.
Solely subsidizing housing doesn't address the fact that the spread between what lower income backets can pay and what is available is going to keep increasing, which is only going to serve to make subsidies more expensive over time. And continuing to increasingly pay more for something when there are other things to at least try to reduce the cost is a losing proposition.
Anyway, I think I'm making a substantive point, so I don't get the accusation of "hand-waving." Accusing someone of ignoring complexity is not an argument against the points they did make.
if we're going for soundbites, how about "current super prosperity at the top was created by destroying wealth of the middle class" :)
It is the same as groups or governments buying open space to preserve it.
It's easy to see the cost of allowing the property value to rise to market rates: people will have to find new homes. I'm not blind to the fact that this would be a terrible upheaval in their lives. The places where they might afford to live might be much worse than their current situation.
But -- there are costs to subsidizing their rent (and it is a subsidy -- if the law prevents market pricing, someone is paying for it). These costs are hard to estimate, but they are the cost of rising property prices elsewhere due to artificially low supplies, the cost to property owners who cannot realize the full potential of their assets, and the costs to the construction industry which cannot improve the land.
There is also the cost, maybe most importantly, of all of the money that is artificially tied up in the rent being paid by others that cannot be spent elsewhere. That infusion of spending would mean a lot of new wealth for workers in the service industry, for example.
Destroying wealth so that a lucky group of (perfectly decent) people can live cheaply in one of the most expensive ZIP codes in the nation may sound compassionate, but there is a cost, and there are unlucky people who suffer. Those people aren't all rich. It's impossible to measure the marginal gain in wages and new jobs created if the real estate prices in the Bay Area were deregulated and allowed to float to the market rates. But the gains would be real, and real people would benefit, and there are real people throughout the rest of the Bay Area who do not get to live in Palo Alto and who are really suffering.