Wednesday, July 12, 2006
broken windows raises wealth
In what I think is the first time I've philosophically agreed with something written in the NY Post, the paper speculates that the explosion that destroyed a Midtown Manhattan townhouse actually increased the value of the property!
Although we all know that broken windows do not generally lead to prosperity, in this case, where a property was artificially constrained under the unduly burden of landmark and zoning regulations, the market value of the property was effectively inhibited and lowered, hence lowering aggregate societal wealth.*
As I have wrote several times in the past, the equivocation of rising property prices to an increase in real wealth is nonsense. Falsely believing in such leads many people to consider the effect of landmarking to be beneficial (and on net to outweigh the costs of such market intervention), since empirical evidence seems to correlate the event of landmarking to an increase in property values within the neighborhood.
Of course once you realize that landmarks does not increase wealth, and essentially is an artificial reduction in housing supply, we can expect property prices to shift somewhat upwards in relation of a higher ratio of bidding to a decreased housing market.
Now although in this instance real capital goods were destroyed, this was presumingly an act of "creative destruction", because the owner bypassed the medusa of imposing bureaucrats who wish to freeze New York City into a fairied vision of its past. In doing such, the owner opened up an opportunity for a developer to construct a building more in tune with the market demand for its available floorspace, bringing along greater societal wealth in the process.
Sadly enough, the granfalutin' head of the odious landmarking commission, Robert B. Tierney, in his vain glory visited the site of the explosion yesterday to survey the damage, and to proclaim to all New Yorkers, that fear not, he will make sure that whomever comes along to construct a new edifice will have to survive the gauntlet of the landmarks commission when seeking approval for the new construction, an open invitation I'm sure many will want to pass up.
*This is not to say that in the truly free market the condition favorable to an even higher density construction would be likely, because current housing supply is shaped mostly in part by arbitrary zoning ordinances, varying neighborhood densities to a degree which would be unlikely to arise under laissez faire. At the same time, in the real world, demand on this particular parcel is sharpened because of constraints elsewhere, helping to cartelize the housing supply to the strata of society who want to keep it to themselves.