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Land rent works very differently than most other markets because land is of limited supply. "Fair market price" is determined by what people who live in an area

Land rent works very differently than most other markets because land is of limited supply. "Fair market price" is determined by what people who live in an area can afford to pay, rather than primarily supply and demand. Add to that restrictive zoning laws and you end up with a situation where most landlords are extracting significant economic rents from their tenants without needing to provide any extra service or quality of good to earn that rent.

refurb 5y ago
I don’t disagree that zoning impacts prices, but it’s still “fair market price”, no? I choose to move to SF knowing that rents were absurd compared to other cities I could have moved to. But I choose to roll the dice on SF being the better choice. I get it that people who grew up in SF face a different choice - leave or not. But it’s still a choice for them.
- HarryHirsch 5y ago
  Established landlords have friends on the local council, and can determine who gets a building permit. Prices are set by the two or three biggest players, who all know each other. That stuff happens all the time.
  - refurb 5y ago
    Sure, but someone still makes a decision “yes this rent is worth it” or “no I’ll go somewhere else”.
    - HarryHirsch 5y ago
      With a greater supply the clearing price will be lower. That's a trivial statement. The real problem is elsewhere - by constraining supply landowners are inhibiting economic development. Newcomers have a choice, if accommodation is too high they'll go elsewhere, so economic growth in productive industries will take place elsewhere. Man, not too long ago I shitcanned a new job 4 days in over the insane housing prices. A good number of my colleagues had a sideline in Airbnb, that asset inflation machine. There's far too much capital sunk in real estate, where it could not be more unproductive.
- BirdieNZ 5y ago
  If someone owned all the water in the world, then "fair market price" is whatever they choose to set the price at. That doesn't mean that as a society we should be comfortable with allowing one person to own all the water in the world.
ahepp 5y ago
It sounds to me like you are describing a situation where supply is constrained, rather than one where the price is not set primarily by supply and demand. I feel this distinction is important because it could guide whether the solution is based on encouraging more capital investment to do things like increase density, or whether the solution is essentially to ban outside investment.

refurb 5y ago

I don’t disagree that zoning impacts prices, but it’s still “fair market price”, no? I choose to move to SF knowing that rents were absurd compared to other cities I could have moved to. But I choose to roll the dice on SF being the better choice. I get it that people who grew up in SF face a different choice - leave or not. But it’s still a choice for them.

HarryHirsch 5y ago
Established landlords have friends on the local council, and can determine who gets a building permit. Prices are set by the two or three biggest players, who all know each other. That stuff happens all the time.
- refurb 5y ago
  Sure, but someone still makes a decision “yes this rent is worth it” or “no I’ll go somewhere else”.
  - HarryHirsch 5y ago
    With a greater supply the clearing price will be lower. That's a trivial statement. The real problem is elsewhere - by constraining supply landowners are inhibiting economic development. Newcomers have a choice, if accommodation is too high they'll go elsewhere, so economic growth in productive industries will take place elsewhere. Man, not too long ago I shitcanned a new job 4 days in over the insane housing prices. A good number of my colleagues had a sideline in Airbnb, that asset inflation machine. There's far too much capital sunk in real estate, where it could not be more unproductive.
BirdieNZ 5y ago
If someone owned all the water in the world, then "fair market price" is whatever they choose to set the price at. That doesn't mean that as a society we should be comfortable with allowing one person to own all the water in the world.

ahepp 5y ago

It sounds to me like you are describing a situation where supply is constrained, rather than one where the price is not set primarily by supply and demand. I feel this distinction is important because it could guide whether the solution is based on encouraging more capital investment to do things like increase density, or whether the solution is essentially to ban outside investment.