2 ms·

> the property owner is always able to claim all of the surplus from the renter Not really: this only applies if the demand curve is flat and different cities

by devit 11y ago

> the property owner is always able to claim all of the surplus from the renter Not really: this only applies if the demand curve is flat and different cities are not competition with each other. In practice, the demand curve is not flat because there are people that earn more than others, but they will still pay depending on the wage of the marginal/equilibrium person. Also, cities compete with each other so if e.g. Silicon Valley rents become sky-high because they capture all the value of tech companies, eventually companies will move or be started elsewhere, thus making it possible for employees to live there.

notahacker 11y ago
This. More precisely, and on an ultra-micro level the surplus a property owner may be able to capture all of is the surplus compared with the next best available alternative site. If it's a retail unit in a rare spot next to a busy station, the owner of the property can capture [nearly] all of the leaseholders' additional expected profit due to heavy footfall, but not nearly all their profit period, because otherwise it becomes more profitable for store owners to pass on the opportunity in favour of opening on a site with low customer footfall but even lower lease rates. Similarly, suburban houses based right outside a high-paying office campus won't be priced at much of a premium to the surrounding suburbs, because workers there will expect to own a car anyway and won't mind a slightly longer commute that much. And all of this assumes there are multiple prospective buyers whose use of the site will generate that surplus. If the use of the site is dramatically more valuable for one prospective buyer than for all the other buyers (e.g. because they have a supplier next door), they'll still only have to bid a fraction more than a market price determined by other buyers without that advantage, and so the buyer gets to keep all that surplus.

by devit 11y ago

notahacker 11y ago

This. More precisely, and on an ultra-micro level the surplus a property owner may be able to capture all of is the surplus compared with the next best available alternative site. If it's a retail unit in a rare spot next to a busy station, the owner of the property can capture [nearly] all of the leaseholders' additional expected profit due to heavy footfall, but not nearly all their profit period, because otherwise it becomes more profitable for store owners to pass on the opportunity in favour of opening on a site with low customer footfall but even lower lease rates. Similarly, suburban houses based right outside a high-paying office campus won't be priced at much of a premium to the surrounding suburbs, because workers there will expect to own a car anyway and won't mind a slightly longer commute that much. And all of this assumes there are multiple prospective buyers whose use of the site will generate that surplus. If the use of the site is dramatically more valuable for one prospective buyer than for all the other buyers (e.g. because they have a supplier next door), they'll still only have to bid a fraction more than a market price determined by other buyers without that advantage, and so the buyer gets to keep all that surplus.