People respond to incentives
In the post "Two poor incentive systems" at Catallarchy,
the author explicitly points out something that should be totally
obvious and commonsense (which is perhaps why this is the first time
that I see this topic mentioned in the American economics blogs that I
read) but is actually currently very true in Finland and people over
there are slowly waking up to this fact.
Studies have indicated that high housing prices are mostly due to regulation restricting supply. And it should be no suprise why. If most voters in a region are homeowners, then they will tend to vote for regulations and officials who will make it hard to build new homes, as this will increase the value of their homes.
So true. I thank Fate for getting to live in Mississauga, because in this town the rent-seeking (heh) homeowner mafia doesn't get to extract money from honest people. This debt-free city grows and allows new housing to be constructed to accommodate the masses of people who want to come here, so the housing prices remain tolerable even though there is an almost-world-class city of Toronto right next door. It's so nice to live in a place that has a future.
Actually, in Finland, the problem is due to regulations and pressure groups, but not in the way you describe.
The zoning laws in Finland make it possible for pressure groups to drag decisions about building for many years. So, firstly, the construction business is unable to react swiftly to changes in demand. Secondly, due to the fact that there may be someone dragging and postponing plans, there is a large risk-premium on the returns that building must make. This ups the prices.
Posted by Tiedemies | 3:16 PM
Low interest rates on home mortgages also contribute to rapid price increases. That's what was behind the now-ending housing hyperinflation in the United States, that and a fetish on the part of house buyers for "good" school systems.
Peter
Iron Rails & Iron Weights
Posted by Anonymous | 9:19 PM
The thing about "good" school systems is largely a function of who the students for that school are, so pretty much by definition, only a fraction of schools can be "good". So a lot of housing prices are basically competition to determine the quality of your children's peers in their local school system. It is an arms race, indeed, it has to be that way when you really think about it.
Posted by Anonymous | 12:24 AM
Just to mention one way to drag decisions, there's a cute little fellow, which is often used as a last resort if your complaint doesn't work. Perhaps you can buy flying squirrel droppings from the Internet so you can place them in a place where you don't want something to be built.
Or maybe it is just that these cases get the most publicity because the combination of a cute animal and an absurd dilemma makes somewhat interesting news. However, this trick has been used so often that it makes you wonder if the little guy is vulnerable as a species after all.
Posted by Rebyk | 3:16 AM
That's what was behind the now-ending housing hyperinflation in the United States, that and a fetish on the part of house buyers for "good" school systems.
The range of quality of the potential peers of a pupil of elementary school is huge in the USA. This is caused by the variety of ethnic and racial groups in the country. Some ethnic groups perform abysmally badly (we all know who these are) and some spectacularly well (again, we know who these are) Not only does the average level of academic performance vary between school districts but also the level of violence, drug pushing and other bad influences.
Posted by Markku | 3:34 AM