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The Law of Rent is about the cost of leasing the land from the owner of the land. This is not the relationship between tenant and the owner of the real estate.

The Law of Rent is about the cost of leasing the land from the owner of the land. This is not the relationship between tenant and the owner of the real estate. It's not the tenant who is looking for maximum productivity from the land, it's the real estate owner renting out places to live. A tall tower housing more people paying individually lower rent is more productive than a small house housing a single affluent person. Unless building is restricted artificially, supply increases until demand is met fully, which leads to price competition and ultimately rents that are as low as they can be.

bostik 8y ago
> supply increases until demand is met fully That is a very optimistic view. What I've seen in Finland and UK is pretty much the opposite of what you claim. In both countries the housing supply in growth centers is essentially controlled by a handful of huge developers. In an attempt to make the planning permission system more comprehensive, it has only turned out more complex and expensive to navigate. That means that only the largest operators can afford to work within it. In both countries we see developers deliberately restricting the speed with which new housing stock enters the market. In UK, the common pattern seems to be to sell a floor or two at a time, while the others are still supposedly under construction. In Finland, the developers literally shut down their sales and rather took a hit in maintenance costs than sell their available stock while the market was too slow. Your assumption therefore makes a crucial mistake - it stems from an assumption of perfect markets and unrestricted housing supply. In reality neither of those two hold true.
- zeroname 8y ago
  > In an attempt to make the planning permission system more comprehensive, it has only turned out more complex and expensive to navigate. That means that only the largest operators can afford to work within it. That's exactly what I'm talking about when I say "artificial restrictions". Don't assume that the market players don't want these restrictions, it's easier to sit on past success than fighting for sustained success. Big players always profit (relatively) from regulation, it keeps down competition from below. > Your assumption therefore makes a crucial mistake - it stems from an assumption of perfect markets and unrestricted housing supply. In reality neither of those two hold true. Of course it's an idealization, I'm talking about what would happen to prices if these restrictions didn't exist. Housing supply doesn't have to be unlimited, demand could easily be met, we're far away from any physical limits. You really have to ask yourself, why does San Francisco not look a little bit more like Hong Kong? What would happen to minimum rents if a dozen of residential highrises could be built near the center?
nwah1 8y ago
Rent rises with the productivity of locations, and density makes locations more productive in the aggregate. Agglomeration is the economic term for why that is. It may seem paradoxical to you, but supply and demand simply doesn't function the same way when it comes to land. The supply of land is fixed. That is why rents are more like monopoly pricing.
- zeroname 8y ago
  The supply in question isn't land, it's housing. There's enough vertical space available, so far all intents and purposes, it's not a limiting factor. What's limiting efficient land use is artificial constraints put on construction.

bostik 8y ago

> supply increases until demand is met fully That is a very optimistic view. What I've seen in Finland and UK is pretty much the opposite of what you claim. In both countries the housing supply in growth centers is essentially controlled by a handful of huge developers. In an attempt to make the planning permission system more comprehensive, it has only turned out more complex and expensive to navigate. That means that only the largest operators can afford to work within it. In both countries we see developers deliberately restricting the speed with which new housing stock enters the market. In UK, the common pattern seems to be to sell a floor or two at a time, while the others are still supposedly under construction. In Finland, the developers literally shut down their sales and rather took a hit in maintenance costs than sell their available stock while the market was too slow. Your assumption therefore makes a crucial mistake - it stems from an assumption of perfect markets and unrestricted housing supply. In reality neither of those two hold true.

zeroname 8y ago
> In an attempt to make the planning permission system more comprehensive, it has only turned out more complex and expensive to navigate. That means that only the largest operators can afford to work within it. That's exactly what I'm talking about when I say "artificial restrictions". Don't assume that the market players don't want these restrictions, it's easier to sit on past success than fighting for sustained success. Big players always profit (relatively) from regulation, it keeps down competition from below. > Your assumption therefore makes a crucial mistake - it stems from an assumption of perfect markets and unrestricted housing supply. In reality neither of those two hold true. Of course it's an idealization, I'm talking about what would happen to prices if these restrictions didn't exist. Housing supply doesn't have to be unlimited, demand could easily be met, we're far away from any physical limits. You really have to ask yourself, why does San Francisco not look a little bit more like Hong Kong? What would happen to minimum rents if a dozen of residential highrises could be built near the center?

nwah1 8y ago

Rent rises with the productivity of locations, and density makes locations more productive in the aggregate. Agglomeration is the economic term for why that is. It may seem paradoxical to you, but supply and demand simply doesn't function the same way when it comes to land. The supply of land is fixed. That is why rents are more like monopoly pricing.

zeroname 8y ago
The supply in question isn't land, it's housing. There's enough vertical space available, so far all intents and purposes, it's not a limiting factor. What's limiting efficient land use is artificial constraints put on construction.