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This is a decent explanation but it's actually simpler than that. People who are upwardly mobile follow the jobs. In general, they choose jobs, then cities. Ex

This is a decent explanation but it's actually simpler than that. People who are upwardly mobile follow the jobs. In general, they choose jobs, then cities. Except for the very rich who don't have to work, desirability (excluding commute) is a minor factor in prices. I can back that up, but I think most people buy this already. However, real estate demand is extremely inelastic. If 5 percent of the houses in Manhattan were destroyed, the price increase wouldn't be 5%. It would probably be 2-5x, possibly 10x. That's why, even though rent control only affects a small percentage of the market, its price influence is huge. New development is supposed to correct for that, but often the result of it is creation of more expensive housing, which solves quality problems but doesn't have the desired price effect until many years later. (Real estate rarely goes down in dollar-denominated amounts, for psychological reasons; what does happen in a soft market is that prices stay flat and lose to inflation. In effect, it's a loss-limit on price declines that is very tight when inflation is low.)

pchristensen 13y ago
New development is usually more expensive because: a) supply is legally mandated to be low, so only the most profitable per-unit housing is built, and b) what new units are permitted to built are required to be large because housing (especially in CA but pretty much everywhere) pays less in taxes than it consumes in municipal services, especially public schools. As a consequence of b), the types of housing that are widely allowable are small (0-2BR apts/condos) that families with > 1 child won't live in and large houses. If prices are high enough, sometimes townhouses are allowed. One interesting observation is that the only high density housing being built in most suburbs are senior housing, which are aimed at people ages 55+ and have covenants in place preventing anyone under 18 from living there. Ergo, guaranteed no school children and therefore the cost to serve is more inline with taxes paid. I would love to buy a 4 or even 5 BR condo because I want to live somewhere dense and I don't care about a yard, but in order to do that I'd have to buy 2+ condos and combine them. Yikes.

pchristensen 13y ago

New development is usually more expensive because: a) supply is legally mandated to be low, so only the most profitable per-unit housing is built, and b) what new units are permitted to built are required to be large because housing (especially in CA but pretty much everywhere) pays less in taxes than it consumes in municipal services, especially public schools. As a consequence of b), the types of housing that are widely allowable are small (0-2BR apts/condos) that families with > 1 child won't live in and large houses. If prices are high enough, sometimes townhouses are allowed. One interesting observation is that the only high density housing being built in most suburbs are senior housing, which are aimed at people ages 55+ and have covenants in place preventing anyone under 18 from living there. Ergo, guaranteed no school children and therefore the cost to serve is more inline with taxes paid. I would love to buy a 4 or even 5 BR condo because I want to live somewhere dense and I don't care about a yard, but in order to do that I'd have to buy 2+ condos and combine them. Yikes.