Monday, August 28, 2006

when logic need not apply

Some people just don't get it-- and this is not just anyone, it's a blog written by one of the most respected property appraisers in New York City, who you would think would know, well you know, about property values, and the formation of prices in general.

According to his foolish naïveté, it's the housing boom that drives the middle class out of the city, not misguided market intervention (which is a truely understandable conclusion for an empiracist who illogically correlates a boom in the housing supply with the exodus of middle class workers and deduces that an increased supply of a good = higher prices).

Go figure.

Below are the comments I left this wunderkind.
"This is one of the byproducts of the housing boom and revitalization of urban areas."

That dog won't hunt.

This is a direct product of people naively believing in the Central Planning Fairy.

The main reason why middle class incomed people are being priced out of the cities is tri-fold:

The primary problem is the irrational belief in the goodness of centrally planned zoning; that which dictates the density, dimensional proportion, usage type, etc. allowed. Of course planners are only human, so they cannot fully forsee all the long-ranging effects of their economic devestation and class-polarity housing policies.

The act of zoning is the grand pretense that experts have the right and privilege to tell you what is good for you, Citizen Joe, as though Joe would not have common sense enough to not live in unlivable living conditions.

It thus serves to stifle development of all kind, leaving unmet demand at all price levels, but most especially the middle and lower price ranges.

Think about it, because it's purely logical. If you restrict availablity of any given product, the price will rise as people will bid up prices. Those who cannot afford to bid higher must seek alternatives. Those alternatives include finding housing in less desired areas, and maybe even out of state.

Essentially, zoning thus serves to raise the price of housing by restricting competition. When private organizations engage in this activity, it is known as cartelization and angrily condemned. But when pretensious city planners do it, they are met with celebration as anybody can attest about the shameful participation and agitation by groups such as ACORN or the GVHPS.

Secondarily, the white collar workers are the direct victims of the price war, as they cannot bid away the same quality housing as the rich, and they must live in inferior housing, less choice neighborhoods, etc.

But tertiary, and most insultingly, the white collar workers are the ones subsidizing the lower classes, who thru the mechanizations of the city and state (such as Section 8, HUD, and rent control/stabilization, and IMD regulations*), end up bidding away the housing with the middle classes' money!

So in the end, the white collar worker are the rat which gets chopped from both ends-- the rich can afford the higher prices (and might even prefer the exclusivity the housing shortage provides), and the lower class uses the middle classes redistributed money to buy up the lower end product. It's no wonder the middle class are "fleeing", as they are not in any politicians grace to not be plundered.

The definition of insanity is to continue to act in a manner which is detrimental to your well being, because only the insane repeat the same actions and expect different and better results each time around.

Alternativly, we can pull our heads out of the sand and abandon these puerile fantasies of "smart", managed growth, and leave it to the wisdom of the common individual to decide how tall is too tall, how dense is too dense, etc.

* This was introduced into the blog post for the sake of clarity and does not appear in the original comment.

3 comments:

Jonathan Miller said...

Lettuce Alone - Your post seems to be on some other tangent not covered in my 2 posts. How can rising prices not push people out of the market, especially middle class if their incomes are not rising as fast? Thats what the posts are about. There is no inference of a central planning fairy as you call it anywhere. I have however, discussed New Urbanism at length in Matrix. But not in either of these posts you link to. Revitalization means renovation, which means higher rents and sales prices, which means higher retail rents, which changes services, which means a different demographic. Your comment on my blog represents an opinion you feel strongly about and you make some great points, if only thats what I was talking about.

iceberg said...

Jonathan,

I did not mean to be disrespectful to you, nor your professional job, and I apologize for my prior uppitiness.

I still do think that you don't have a grasp of fundamental economics, and that is what "gets my goat", so-to-speak.

I say this because you make economic arguements that fall short of grasping the causal factor within. For example, you state that the reason why the middle class is disappearing because their incomes are not rising as fast.

I'm no formal student of logic, but I cannot fathom how you jump from recognizing a relatively lower wage increase rate as the primal, causal reason why the middle class are "fleeing" the city.

Your argument suffers for a few reasons;
a) it does not explain why an affordable housing stock does not truly exist in the first place
b) why a differential in wage increase rates should have a more than marginal effect upon housing prices

Take automobiles for example; does the wage increase differential have an effect upon supply of affordable cars?

Of course, the fundemental difference between cars and land is that in the former case, "they aren't making much more of it". But in truth, we havent come close to not having enough land for humanity-- and this is because of the arbitrary limitations that NYC and other "progressive" megapolis's have in place. (I'd rather not get into normative discussion of why I'd prefer Houston to Brasilia.)

The second unwarranted assumption you make is that "renovation and revitalization drive prices higher".

Sorry, but that not how prices work. Price is a function of demand, and which ultimately determines what your costs will be (for the moment leaving out cases of quickly-adjusting entrepreneurial error).

So if urban renovation is to occur, it is because the price has already moved up, and some entrepreneur has spotted the opportunity to take advantage of that differential between old valuations and the newer higher one, while of course he is at risk at misjudging the situation.

I know its more complex than this, and I do have a lot more to say on this subject, but I only wanted to bring out the point that while you are probably the one of the best out there in assessing the general price level of real estate properties, your grasp of what drives those fundamentals seems lacking, and can't be explained further than giving a correlations of historical trends.

CaptiousNut said...

Nice smackdown.

Yeah renovation is driving the middle class out. So when the real estate market weakens (and perhaps the overall economy), pundits will be gushing about how well the middle class is doing and delighted that NYC is more affordable?

I am not holding my breath.

It doesn't matter what the subject is, idiots will conflate or juxtapose cause and effect, symptons and disease.

Just the other day on Mankiw's blog, the usual debate of why people are "poor" came up. Most people agreed, stay in school and avoid teenage pregancy. But of course at least one idiot insisted that the immoral and stupid behavior was caused by poverty, not the other way around.