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To oppose housing subsidies is to always be considered heartless, siding with the rich, etc. But you cannot create prosperity by destroying wealth. The broken

by stvswn 11y ago

To oppose housing subsidies is to always be considered heartless, siding with the rich, etc. But you cannot create prosperity by destroying wealth. The broken windows fallacy applies here. 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.

resu_nimda 11y ago
but they are the cost of rising property prices elsewhere due to artificially low supplies, 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.
- itsjoeco 11y ago
  "I imagine the property owners in question are doing just fine." You're interested in the exact situation, and in this exact situation, maybe you're right. Do you expect that any number of rules restricting the use of property would make these owners stop "doing just fine?" If we are basing our legal system off of whether people are "doing just fine" then who is the arbiter of who is doing just fine and who is not doing just fine? Should we call resu_nimda every time there is a property dispute to determine who deserves what according to their need?
- stvswn 11y ago
  Yes, undersupply and high prices are a problem. Only 9% of the housing stock in SF is available for rent at market rates. I know it is the desired effect of subsidies to reduce prices for a worthy class of people, but my point is that it doesn't do a good job, and it doesn't have the desired effect, and that there are unseen costs. 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/That_Which_Is_Seen,_and_That_Which_Is_Not_Seen https://en.wikisource.org/wiki/Essays_on_Political_Economy/T...
  - resu_nimda 11y ago
    but my point is that it doesn't do a good job, and it doesn't have the desired effect, and that there are unseen costs. 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.
trhway 11y ago
>To oppose housing subsidies is to always be considered heartless, siding with the rich, etc. But you cannot create prosperity by destroying wealth. The broken windows fallacy applies here. if we're going for soundbites, how about "current super prosperity at the top was created by destroying wealth of the middle class" :)
- stvswn 11y ago
  You have an arguable point, if you think that artificially inflated asset prices, caused by low interest rates, led to the decline in real wages for the middle class while benefitting the super-rich. Our points would then not be mutually exclusive. But I somehow doubt you're putting that much thought into it, and you just don't believe in the inherent value of market economics.
ktothemc 11y ago
Hi stvswn: I think a really important thing to take into consideration is that California caps property taxes under 1978's Proposition 13. At the same time, Palo Alto has a particularly strong "residentialist" ideology that prevents additional development. What that means is that landowners are able to accumulate supra-natural returns in on their holdings, while doing nothing on their land. It incentivizes property owners across Silicon Valley and California to sit on parcels and ride the price appreciation without redeveloping the property. That in turns imposes a sort-of tax on innovation and productivity in the region as a larger and larger share of income-generated merely goes back into the land, instead of to other productive uses. http://www.economist.com/blogs/freeexchange/2015/03/wealth-inequality http://www.economist.com/blogs/freeexchange/2015/03/wealth-i... 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.
- stvswn 11y ago
  Good point! Those are inherent subsidies to property owners, I expect. In which case my answer would be that we should remove the market distortions, not correct them with more central planning.
sjg007 11y ago
I think the county/city buying it and operating as a nonprofit helps them meet affordable housing requirements. Now the question is could you get 180 families elsewhere in Palo Alto in new developments that have an affordable housing component. It is the same as groups or governments buying open space to preserve it.

by stvswn 11y ago

resu_nimda 11y ago

but they are the cost of rising property prices elsewhere due to artificially low supplies, 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.

itsjoeco 11y ago
"I imagine the property owners in question are doing just fine." You're interested in the exact situation, and in this exact situation, maybe you're right. Do you expect that any number of rules restricting the use of property would make these owners stop "doing just fine?" If we are basing our legal system off of whether people are "doing just fine" then who is the arbiter of who is doing just fine and who is not doing just fine? Should we call resu_nimda every time there is a property dispute to determine who deserves what according to their need?
stvswn 11y ago
Yes, undersupply and high prices are a problem. Only 9% of the housing stock in SF is available for rent at market rates. I know it is the desired effect of subsidies to reduce prices for a worthy class of people, but my point is that it doesn't do a good job, and it doesn't have the desired effect, and that there are unseen costs. 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/That_Which_Is_Seen,_and_That_Which_Is_Not_Seen https://en.wikisource.org/wiki/Essays_on_Political_Economy/T...
- resu_nimda 11y ago
  but my point is that it doesn't do a good job, and it doesn't have the desired effect, and that there are unseen costs. 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.

trhway 11y ago

>To oppose housing subsidies is to always be considered heartless, siding with the rich, etc. But you cannot create prosperity by destroying wealth. The broken windows fallacy applies here. if we're going for soundbites, how about "current super prosperity at the top was created by destroying wealth of the middle class" :)

stvswn 11y ago
You have an arguable point, if you think that artificially inflated asset prices, caused by low interest rates, led to the decline in real wages for the middle class while benefitting the super-rich. Our points would then not be mutually exclusive. But I somehow doubt you're putting that much thought into it, and you just don't believe in the inherent value of market economics.

ktothemc 11y ago

Hi stvswn: I think a really important thing to take into consideration is that California caps property taxes under 1978's Proposition 13. At the same time, Palo Alto has a particularly strong "residentialist" ideology that prevents additional development. What that means is that landowners are able to accumulate supra-natural returns in on their holdings, while doing nothing on their land. It incentivizes property owners across Silicon Valley and California to sit on parcels and ride the price appreciation without redeveloping the property. That in turns imposes a sort-of tax on innovation and productivity in the region as a larger and larger share of income-generated merely goes back into the land, instead of to other productive uses. http://www.economist.com/blogs/freeexchange/2015/03/wealth-inequality http://www.economist.com/blogs/freeexchange/2015/03/wealth-i... 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.

stvswn 11y ago
Good point! Those are inherent subsidies to property owners, I expect. In which case my answer would be that we should remove the market distortions, not correct them with more central planning.

sjg007 11y ago

I think the county/city buying it and operating as a nonprofit helps them meet affordable housing requirements. Now the question is could you get 180 families elsewhere in Palo Alto in new developments that have an affordable housing component. It is the same as groups or governments buying open space to preserve it.