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> You would think that because of all the automation causing the low employment and the aggregation of wealth into only a small number of people's hands that pr

by nkoren 13y ago

> You would think that because of all the automation causing the low employment and the aggregation of wealth into only a small number of people's hands that prices would not go up because most people had less money to spend cause they're not working. Prices are determined not by what most people can afford, but by what makes the most money for the seller. To use a contrived example, imagine you are selling a product with no marginal cost to a population with very high inequality. This population consists of 50 people who can afford to pay $1 for your product, and 1 person who can afford to pay $100. How much do you, the seller, charge for your product? You can sell it to 50 people and make $50 profit, or one person and make $100 profit. Therefore you charge the higher price for the product, even though the population is overwhelmingly poor. With a more realistic income-distribution, this same phenomena causes prices to be dictated more by mean incomes rather than median incomes. As society becomes more unequal and the gap between mean and median widens, you therefore can have prices increasing even as the vast majority of people get poorer. (There's a traditional mechanism for dealing with this: price discrimination. In the contrived example above, the perfect solution would be to differentiate your product into a $1 product for poor people, and a $100 product for rich people; this results in the optimum utility for buyers and sellers alike. Unfortunately, this kind of price discrimination is becoming increasingly difficult in today's disintermediated world: the millionaires I know are as happy as anyone else to order off Amazon. So goods and services increasingly tend to have a single price, and that price is increasingly set by the mean.)

yummyfajitas 13y ago
This population consists of 50 people who can afford to pay $1 for your product, and 1 person who can afford to pay $100...You can sell it to 50 people and make $50 profit, or one person and make $100 profit. This is true for a single monopolistic market incumbent. On the other hand, if I (the upstart) want to make money, I'll charge $1. I don't care if I just cost you $100 and I only gained $50 in profit - my choices were either getting $50 (by selling at $1) or $0 (by selling at $100). The real estate market is pretty competitive - it's not as if a small oligopoly owns all the land. So if rent is going up, you should be asking what what prevents upstarts from buying up a city block and building a gigantic low cost tower block to house everyone. (Hint: insane SF zoning regulations.)
- brudgers 13y ago
  It's more than zoning regulations. It's the difficulty of aggregating a large enough parcel. There are two ways to own an urban block: acquire it parcel by parcel over time or purchase it from someone who has acquired it parcel by parcel over time. [1] Obviously basic market place principles play a role. Remaining parcels go up in value as the block becomes increasingly under single ownership and because other people are trying to do the same thing [2]- identifying prime parcels for redevelopment is easy for obvious parcels and there are lots of eyes looking for less obvious parcels. [1] ok, sometimes you can get the government to condemn the block and turn it over to you in one fell swoop and that's probably the most cost effective in many places. [2] The third to last parcel on a block remaining to be aggregated has often improved its location because of the aggregation process and hence commands a much higher price than paid for parcels already part of the aggregate.
  - nitrogen 13y ago
    I seem to recall a story that Disney used a network of shell companies to conceal its aggregation of the property on which Disney World was built to avoid the effects you mention.
    - brudgers 13y ago
      Yes. It's standard practice in an industry that has long lead times, often requires keeping the locals in the dark and whose primary raw materials are non-fungible. Disney also used the political route to establish a private governmen, The Reedy Creek Improvement District.
- nkoren 13y ago
  I'd love to see San Francisco have much more open zoning regulations. They're clearly a contributor to the high real estate costs. However even if I built a low-cost arcology in the middle of SF, I can guarantee that it would find a ready market of rich people willing to pay premium for it. Until the supply of real estate exceeds the demand of rich people willing to pay for it, the market will cater primarily to the wealthy and prices will remain high. A vasty liberalised zoning regime would probably help -- but not until it had saturated the market to the point where the wealthy were no longer crowding out the rest. Unfortunately the financialisation of the real estate industry makes this very difficult to achieve, as the wealthy will keep acquiring real estate as an investment long after their need for it as an actual place to live has been sated. Solutions to this will almost certainly need to include all of the following: 1.) Liberalisation of zoning & development, as you suggest (see Germany for a good example of this). 2.) Ending tax breaks which reward the accumulation of real estate. Probably other measures to de-financialise the real estate sector somewhat, such as requiring significantly higher reserves for banks. 3.) A Universal Basic Income to provide automation-proof social support / monetary redistribution in the face of the end of wage labour.

by nkoren 13y ago

yummyfajitas 13y ago

This population consists of 50 people who can afford to pay $1 for your product, and 1 person who can afford to pay $100...You can sell it to 50 people and make $50 profit, or one person and make $100 profit. This is true for a single monopolistic market incumbent. On the other hand, if I (the upstart) want to make money, I'll charge $1. I don't care if I just cost you $100 and I only gained $50 in profit - my choices were either getting $50 (by selling at $1) or $0 (by selling at $100). The real estate market is pretty competitive - it's not as if a small oligopoly owns all the land. So if rent is going up, you should be asking what what prevents upstarts from buying up a city block and building a gigantic low cost tower block to house everyone. (Hint: insane SF zoning regulations.)

brudgers 13y ago
It's more than zoning regulations. It's the difficulty of aggregating a large enough parcel. There are two ways to own an urban block: acquire it parcel by parcel over time or purchase it from someone who has acquired it parcel by parcel over time. [1] Obviously basic market place principles play a role. Remaining parcels go up in value as the block becomes increasingly under single ownership and because other people are trying to do the same thing [2]- identifying prime parcels for redevelopment is easy for obvious parcels and there are lots of eyes looking for less obvious parcels. [1] ok, sometimes you can get the government to condemn the block and turn it over to you in one fell swoop and that's probably the most cost effective in many places. [2] The third to last parcel on a block remaining to be aggregated has often improved its location because of the aggregation process and hence commands a much higher price than paid for parcels already part of the aggregate.
- nitrogen 13y ago
  I seem to recall a story that Disney used a network of shell companies to conceal its aggregation of the property on which Disney World was built to avoid the effects you mention.
  - brudgers 13y ago
    Yes. It's standard practice in an industry that has long lead times, often requires keeping the locals in the dark and whose primary raw materials are non-fungible. Disney also used the political route to establish a private governmen, The Reedy Creek Improvement District.
nkoren 13y ago
I'd love to see San Francisco have much more open zoning regulations. They're clearly a contributor to the high real estate costs. However even if I built a low-cost arcology in the middle of SF, I can guarantee that it would find a ready market of rich people willing to pay premium for it. Until the supply of real estate exceeds the demand of rich people willing to pay for it, the market will cater primarily to the wealthy and prices will remain high. A vasty liberalised zoning regime would probably help -- but not until it had saturated the market to the point where the wealthy were no longer crowding out the rest. Unfortunately the financialisation of the real estate industry makes this very difficult to achieve, as the wealthy will keep acquiring real estate as an investment long after their need for it as an actual place to live has been sated. Solutions to this will almost certainly need to include all of the following: 1.) Liberalisation of zoning & development, as you suggest (see Germany for a good example of this). 2.) Ending tax breaks which reward the accumulation of real estate. Probably other measures to de-financialise the real estate sector somewhat, such as requiring significantly higher reserves for banks. 3.) A Universal Basic Income to provide automation-proof social support / monetary redistribution in the face of the end of wage labour.