Get Real

« I'm fired | Main | i may never blog again »

November 01, 2005

varian on the too big lots spiral

i'm back and catching up

but this  squib 

by one hal varian 

prof at berkley 

     needs one of your baron's

famous

      fine tooth comb 

                 curry jobz 



=======================


 from a piece in the nyt 

october 20 ..or so 

"...In the short run, the supply of housing 

in most areas is more or less fixed. 

Hence the price of housing is determined primarily by 

the demand side of the market "

" by how much people are willing to pay for housing"

" In the last few years

 we have seen historically low mortgage rates

 which feed directly into housing demand"

" In several locations

 particularly on the East and West Coasts

 where land-use restrictions 

make it difficult to increase

 the supply of housing

 prices have been pushed up 

to unprecedented levels"

 

"Can anything be done? "



"If you really wanted to push housing prices down

 you would increase taxes on housing. ..."

 

"Of course, the total cost of the housing

 (purchase price plus the present value of the taxes) 

would be unchanged

 so this really does not solve

 the housing cost problem either"

" In California, tax policy has played a significant role in housing price dynamics. Proposition 13,

 passed in 1978, limited property tax increases 

to 2 percent a year for owner-occupied homes

 But when the house is sold

, the property tax assessment 

is based on the sale price.

 This means the new owner 

typically faces a significantly higher 

property tax bill than the old owner

 Proposition 13 has been called a "tax on moving."

 Indeed it is... It is a lot cheaper 

to add a bedroom to a three-bedroom house 

than to buy a similar four-bedroom house...

 For the same reason, 

empty-nesters have strong tax incentives 

to keep their houses... 

The result is that fewer houses 

come on the market than would otherwise be the case

 pushing prices up even more 

for the limited stock of housing that is available" 



 

"So what is the answer to high home prices?

 Basic economics tells us that for housing prices to fall

 we have to see a reduction in demand 

or an increase in the supply of housing"

" There is some hope on the demand side

 As interest rates rise,

 we should see some moderation in demand;

 indeed, it appears that housing prices 

are flattening out in some areas."

" Ultimately, the only reliable way 

to make housing more affordable 

is to increase the supply"

" But a new house requires 

land zoned for housing

 We cannot make more land

 so we either have to use the land we have

 more intensively 

or we have to build houses farther from jobs

. ... In urban California, 

traffic has become increasingly congested,

 putting a limit on how far away 

from their jobs people can live.

 Land use restrictions are tight

 in many desirable residential areas,

 and political forces are aligned 

against relaxing these restrictions.

 Imagine someone who scrimps and saves 

to buy his dream house 

in an area zoned for one-acre lots

 The last thing he wants to see 

is his neighbor's lot being subdivided 

to build two or three new houses. ... 

Zoning laws and land use restrictions 

are unpopular among those seeking 

less-costly housing 

since they push up the price

 But by the same token

 once a searcher becomes an owner

 he often becomes a fervent supporter

 of such restrictions

 As Pogo put it,

 "We have met the enemy and he is us."