>In a food shortage, for example, regulating the price of bread only trades one expression of scarcity (high prices) for another (empty shelves).
Well sure. But the total amount of people who have some bread is now greater, versus a select few wealthy people getting all the bread they want, as the wretched masses stare longingly. You can either increase total happiness, or concentrate it to the powerful. It's pretty clear by the tone of this article which side the writer lands on.
Rationing bread would increase the number of people who have some bread.
Regulating the price to a point well below the free market supply/demand driven price causes a decrease in the amount of bread supplied to the market (and probably increase hoarding/decrease the breadth of distribution).
Think back to toilet paper shortages last spring. Rationing was arguably the best move (and was what local markets around me did).
I think this is something that is often overlooked in progressive circles. Markets treat high prices as signal to increase supply. When supplies cannot be increased you get market inequities.
Rationing for goods like bread, paper, milk, gasoline, etc. Can be a stand-in while the problem that is preventing the market from responding by increasing supply is fixed.
The problem is that usually supply isn't the problem, it's demand. For example, America's main problem with agricultural products is finding enough people to buy and eat them. That's why the government spends lots of money on agricultural supports. Hell, even welfare programs, as inadequate as they are, help stabilize prices by basically injecting a minimum amount of demand into the system. So, usually, supply shocks are temporary and resolvable without needing to resort to price gouging. The producers know that prices of a particular commodity aren't going to collapse if they invest money in switching over to produce it. Instead of getting a 10x jump in the price of, say, bread; it gets a little hard to find at first and then goes up 5%.
Housing is almost completely the opposite; supply of the underlying land is fixed and most cities cap density. We can, of course, uncap density; but that still requires we basically displace everyone living in the city eventually to make way for larger buildings that can house more people. The thing that really grinds my gears is that the solutions to housing scarcity effectively amount to building a wall around a city and making foreigners pay for it - and they're often championed by exactly the same kinds of people who otherwise are rightly opposed to immigration formalities.
> we basically displace everyone living in the city eventually to make way for larger buildings that can house more people
In theory, this is true. In practicality, at least in America there's enough land with very little density, that a new building could be constructed while displacing basically no one (because the previous occupant of the land is already willing to move, it's just that the new seller isn't allowed to build anything).
Eventually, yes, we'll get to point where displacement is an issue, but right now it's not worth worrying about. Building dense really is a "free lunch" so to speak.
I probably agree with you overall, I just bring this up because a lot of NIMBY arguments use displacement as the boogeyman, and I'd rather not give them more support.
> The thing that really grinds my gears is that the solutions to housing scarcity effectively amount to building a wall around a city and making foreigners pay for it - and they're often championed by exactly the same kinds of people who otherwise are rightly opposed to immigration formalities.
Many of the arguments even go beyond that and sound like anti-immigration arguments: I've heard a lot of people say that techies/yuppies in SF should go back to the cities they came from.
I almost want to agree with you on the displacement point, but the problem is that building on empty land is how we got Phoenix. The ROI on dense buildings isn't great unless you're closer to the center of an already developed city, and then all the problems with displacement and NIMBYs apply. Also, building out to avoid zoning laws isn't great for the local environment.
That being said, displacement almost certainly shouldn't be used as an excuse not to build... but it is. I bring it up specifically to front-run certain left-NIMBY arguments against ever increasing housing supply. Equitable pro-growth city planning needs to assume that the short-term pain of growth will be borne on the backs of the poor; and then implement policies to ameliorate that pain while still promoting density. Just dismissing left-NIMBYs as crypto-Trumpist won't dismiss their otherwise valid concerns, as much as it really feels good to do so from behind a keyboard.
> I almost want to agree with you on the displacement point, but the problem is that building on empty land is how we got Phoenix. The ROI on dense buildings isn't great unless you're closer to the center of an already developed city, and then all the problems with displacement and NIMBYs apply. Also, building out to avoid zoning laws isn't great for the local environment.
I think you misunderstood my point. What I meant is that are many empty/available lots ready for development in the city, which could be redeveloped with minimal to no displacement. The problem is that zoning laws (and in many places like SF, community reviews/objections) prevent building there.
For example, in Sunnyvale, a developer bought a empty mall, so they could redevelop it into housing/offices. However, that project took years to get started because of lawsuits and red tape. In New York City, a proposal to replace a parking lot with 300 units of housing in South Seaport was rejected for not fitting the character of the community. Why worry about displacement if projects without displacement take forever to build, or are not allowed?
More generally, most cities have plenty of neighbourhoods that are currently zoned for single family housing. Increasing density there would lead to minimal displacement, because the density is so low that you'd displace on the order of 10s of people per project, which is not a massive amount to deal with.
And if we redefine displacement as being forced to leave against your will (which I think is what left-NIMBYs and I really care about), you could probably get that number down to 0, because I'm sure there are many owner-occupiers who would be willing to sell their property to a developer and move out; they just can't because zoning law forbids increasing density.
> then implement policies to ameliorate that pain while still promoting density
Many efforts to increase density take this into account, and are designed to minimize displacement. For example, the upzoning bill in CA (SB 50) disallowed rebuilding properties that had renters occupying it for the past 5 years, which means that only owner occupied units would be rebuilt (and thus causing no displacement under the definition I used above).
Eventually, we'll run out of empty lots and owner occupied properties in cities to upzone, at which time, we'll have to decide how to make the hard tradeoffs around displacement. But right now, we're not close to that point, so there's no need to muddle the waters with future concerns. Let's just build.
> Just dismissing left-NIMBYs as crypto-Trumpist won't dismiss their otherwise valid concerns
I think left NIMBYs do have valid concerns, and I don't think they're "crypto-Trumpists". My opinion is that they're just "useful idiots" [0] for existing property owners and landlords, because they don't have a good understanding of land economics and how their proposed policies will interact in the real world, which just leads to homeowners and landlords getting richer at the expense of those without property.
[0] - Sorry for the harsh phrasing. I don't mean this in a super derogatory way, I just can't think of another word for this.
I agree, although the toilet paper situation was a bit different IMO because the shortage wasn't in the supply chain -- it was absolutely clear that inventories would restock sooner or later. In that situation, higher prices wouldn't have incentivized more production.
Still, supermarkets could have temporarily raised prices 10x and still sold their inventory. Why didn't more of them do it? Presumably, they made the rational calculation that the bad reputation they'd get from such a move would outweigh any short-term profits.
I think this is part of the nuance: we've gotten ourselves into such a bind with housing in so many places that it feels like we need the short term, crisis relief that rent control provides. For some people, it absolutely means not being kicked out into the streets. Go tell that mom and her kids about 'the market'. Yet at the same time, markets, supply and demand are real, and we need to bring them back into balance by at the very least not artificially constraining housing supply in so many places.
> it feels like we need the short term, crisis relief that rent control provides.
These programs have a remarkable way of being sticky over time. For example, New York's current rent stabilization program has its origins in a World War 2 era program which never died (first a federal program, then taken over by the state).
Solution: Build more and build it higher. If you are looking for a different kind of short-time-horizon solution for the mom and her kids who are in a precarious situation due to housing costs, give them cash assistance! But in the long run give them more options and lower prices. There is no reason we cannot do both.
The political complication is that it's very easy for people to be convinced that the short-term answer is the only one that will ever be needed. Addressing long-term problems often involves painful choices that people would rather not face.
That's part of it. The "losers" with rent control are newcomers who may have a harder time finding housing, and some landlords. They're kind of anonymous. But turn up to a public hearing on building some new housing, and the people there to yell about it are your neighbors, ordinary people who "got theirs".
> Yet at the same time, markets, supply and demand are real, and we need to bring them back into balance by at the very least not artificially constraining housing supply in so many places.
Or we could just go ahead and find local governments to directly build houses like we used to (at least here in the UK). If you know what the desired result is then why not enact it directly rather than incentivising it. Markets are most useful when you don't what you (we) want.
So if you wanted to apply the rationing strategy to housing, would high taxes on unoccupied be a way of doing that? I think I have heard of cities (Vancouver?) implementing such taxes.
That would be akin to banning people from hoarding toilet paper. Not a bad idea, but the reason why hoarding affects prices is because there's already scarcity to begin with. Unoccupied units are not driving up the cost of housing, increased demand is.
A toilet paper factory has a long planning cycle and supply contracts, so it cannot react very fast to large changes in demand. The machinery also costs a lot, so they cannot increase the capacity for every spike in demand that will usually disappear in a few weeks. The weakest chain is the Wall Street pressure on these companies to "improve cash flow or else" that lead to reducing the stocks (product and raw materials alike) to minimum, so any surge is even harder to compensate. I worked in this area for some years, this is how it's done.
I don't like "gotcha" style discussions, but I admit I could have worded that more precisely.
What I meant is: There was no reduction in overall toilet paper production, and people didn't suddenly start to shit more. The shortage was mostly a distribution/packaging issue in the form of "not available in packaging X at location Y". Markets tend to solve that kind of problem incredibly quickly.
Very interesting, I guess my experience here in Germany was very different. No toilet paper anywhere for 2-3 weeks last March/April, and then suddenly supermarkets drowned in it.
Do you know if these are really meaningful shortages, or if businesses have just kept the signs up to make people feel taken care of?
I don't know for sure, but even with the max-1 purchase limit, the toilet paper section of the aisle is somewhat lightly stocked on some of my visits. (Of course, if you've told me for a year that TP is in short supply, you can bet that I have a lot of it on hand in the basement, so it's hard to get a clean read. "If there's space in the cart and TP on the shelf, why not pick one up? It's $10, never spoils, and never goes out of style.")
There were some interesting theories floating around about how everyone was home so the residential TP market demand jumped but the commercial demand fell.
Rationing does nothing to increase the supply, and distributes the existing supply to people who don't need it. Rationing assumes everyone has exactly the same need, which is nonsense and leads to gross inefficiencies. Rationing inevitably leads to hoarding and a black market.
Maybe, maybe not. Depends on how you handle prices (or subsidies) along with the rationing.
>distributes the existing supply to people who don't need it.
A bit, but in the case of housing and food you can safely assume people all need it in about the same amounts. You will be wrong, but close enough. The black market might even by your friend in correcting some of your mistakes.
> Rationing assumes everyone has exactly the same need, which is nonsense and leads to gross inefficiencies.
yes and no. You don't have to assume the same needs. You can figure out rules. Families need more space - which can be used to encourage/discourage having kids depending on your goals. Overall it leads to inefficiencies I agree.
> Rationing inevitably leads to hoarding and a black market.
True or not based on how much trust there is in the ration plan. If people agree with the reasons and means there will be a lot less than if people disagree, or find they can't get even the minimum. WWII rationing in the US mostly worked from what I understand - people were proud to not use their entire ration of sugar, but there was overall enough food (including gardens) so it wasn't hard. That is probably the exception (and even then there was a black market!), but it does make the point.
> WWII rationing in the US mostly worked from what I understand
It suffered from all the faults I mentioned. The black market in gas was extensive, and even included drive by shootings. In public, people proudly supported rationing, in private, they sold their extra gas to people who needed it at black market prices. Yes, the government did try in their blundering manner to give different rations based on need, but it inevitably grossly mismatched supply with demand.
I've talked to people who lived through it, and there was certainly two economies going on - the ration one, and the black market one. For example, one lived on a farm that wasn't doing much, but got a big gas allocation because "farm". They made a mint selling it under the table.
> You can figure out rules.
Yeah, like the byzantine vaccine rules, along with the confusion and fights over it. Politicians moved themselves to the front of the line, naturally. Just like in WW2, politicians got all the gas they wanted.
Not to mention the 1942 Labor Stabilization Act[0] that led us the modern employer-provider health insurance situation (which isn't strictly rationing but is an example of well-intended market intervention/price controls being outsmarted by the market participants and casting an enormously long shadow over the country).
[0] Formal title is "An Act to Amend the Emergency Price Control Act of 1942, to Aid in Preventing Inflation, and for Other Purposes"
That part is true, but the decision to take roommates vs not affects the demand on rental properties. The decision to rent a 2 or 3 BR instead of a 1 BR as a single person working from home affects the demand as well.
In a rent-control environment, people have incentive to hoard their rent-controlled apartment as well, especially if rents reset on turnover. If I have a rent-controlled apartment that's well below its replacement cost to me, I'm going to be more inclined to keep it when I initially move in with a significant other. If that relationship fails, I can move back. If it were a market rate apartment, I'd have much less to almost no incentive to do that.
Yep, I know at least one family that’s pretty well off that held onto their rent controlled place for years after no longer living in it, and then essentially passed it down to their kids. They basically own that apartment for less than it’d cost to maintain if they actually owned it, in terms of HOA/property tax, since the rent is stuck where it was like 30 years ago.
And when I was looking for a place, I came across a couple people playing landlord and trying to sublet out their rent controlled place for more than they were paying the landlord.
I don't think this is a very useful way of looking at it. it's uncommon, but not unheard of, for people to rent more than one apartment in the same city. especially if it's a large city, someone with a lot of money might find it attractive to rent a small studio by the office and a larger space in a nice residential area. if rent were really cheap, I might lease a second unit in my building for out-of-town visitors. it would probably be more practical to just rent a 2BR instead, but in some sense this is the same thing. renting two 600 sqft apartments takes roughly as much living space off the market as renting one 1200 sq ft apartment. if rent were way cheaper, you would probably see developers start building much larger units and people renting them. indeed, this is often what you see when you compare housing stock in the city vs. the surrounding suburbs.
I know at least 4 people who lucked out on a rent control unit and have essentially moved away but don't want to give it up, and so keep it as a second residence. Or in other cases, rent it out to someone else at market rates.
Maybe for you, in your current life situation, but that isn't for everyone. You might want a large apartment to live in, and a small room near the "party/bar zone" where you can sleep off your night. Similar to the above you might want a large place for the family, and a small place near work so you can get to the next shift. The above are somewhat common reasons people already take two apartments in the same city.
And there are also people who would be interested in an apartment in a different city. A favorite vacation destination. Near the in-laws so you can visit and yet get away. A short term job. The foreigner in an unstable country who wants every possible reason for customs to let him in if things get bad enough to flee. Hotels fill some of that, but if the price was right an apartment where you can leave spare things instead of packing starts to look nice.
Mostly it isn't economical, and I don't see that changing. However in the imagined world where it was very cheap you might be interested in a second flat just across town. It would change your lifestyle to use it.
> Regulating the price to a point well below the free market supply/demand driven price causes a decrease in the amount of bread supplied to the market.
In some countries like Egypt, bread (or another basic staple) is heavily subsidized below the free market price, but that doesn’t seem to meaningfully impact the market’s supply: any consumer able to pay that artificially low price can still eat all the bread he or she wants.
Subsidies are different from price ceilings; subsidies often spur over-production along with over-consumption (think HFCS), whereas price ceilings discourage production and encourage hoarding (arguably a form of over-consumption). Price ceilings also foster a domestic black market, whereas subsidies foster an export black market.
I agree that subsidies perturb the free market, but in this case to the side of increasing supply. (You can model it as the supply curve being shifted downward by the amount of the government subsidy.)
> You can either increase total happiness, or concentrate it to the powerful.
The nasty, invisible catch with price caps is that this outcome you've described is an idealized one. It's possible to get neither as you make whatever you're trying to regulate functionally unavailable to anyone.
How much bread do you think bakers will produce if a loaf costs $1.20 to make, but politics dictates they cannot sell for above $1 each? In such a scenario nobody gets any bread except what the bakers make for themselves.
It's also possible to try to increase total happiness and actually just wind up concentrating it to the powerful. This is what rent control has done in San Francisco. It's dangerously easy to confuse goal and outcome in policy-making.
This is related to Goodhart's Law, which is "When a measure becomes a target, it ceases to be a good measure." It's a large area of study to figure out how to get the outcome you actually want, while measuring something close, because good metrics can be hard to come by.
The bread example is apt if considered in the context of the apartment issue. What was driving up the price of housing was that they were not creating new housing at a pace to keep up with demand.
So using the focus you had on bread, so you lower the price of bread so more people can afford it. However you don't increase the bakers ability to create bread and they still only have the same amount of bread as before. Well for the most part you have only swapped who has the bread and the number without is basically the same as before. You have done nothing but reduce the profit of the bread maker, at most.
The right answer is to increase availability to where those who have the desire to have bread are satisfied and bread remains around that needs someone to buy it.
Almost all housing shortages are government created if not 100%. Either through direct changes to laws and regulation or through providing the means for other groups to contest the construction of new properties in the courts because enough loop holes exist to stop any new housing.
If anything, the article is too optimistic, because supply isn't constant. We're rehashing Eco 101 here, price controls decrease supply, in housing just with a longer delay. Tragically, that delay may be longer than an election cycle, which explains the political motivation to implement such policies.
In the short term, I'm in agreement without caveat, but in the long term letting the prices rise supports industrial growth. The wealthy buying all the bread they want funds the expansion of the farming industry, allows them to invest in more intensive farming practices, and even better encourages price discrimination, whereby the wealthy actually get the same amount of bread as everyone else but pay extra for the "artisan" varieties. Getting the rich to pay more for essentially the same thing is itself an equalizer.
It's not hard to draw the comparison with housing. Let the rich buy the "luxury" apartments on the top floor (just an example), helping fund the building of large buildings which don't get built without cost-benefit and risk analyses squarely in the black.
The issue is, there's only a limited supply (Berlin can't grow forever), and as result there's already many apartments left empty today to artificially increase the prices of apartments, as they're treated as investments in a bubble, with the intention to profit from increasing value, not from rent.
Not regulating the price was tried for 30 years, and led to many families unable to afford housing, or spending 80%+ of post-tax income on housing.
Berlin is a small city on the global scale. It doesn't need to grow forever, it needs to grow to meet its local demand, which is apparently larger than the existing housing stock.
It's not like this is a hard border. It's completely feasible to live outside its limits. Sure, that's not technically Berlin but for all purposes regarding the housing market it is.
Not quite. If I understand right (as a recent-ish migrant to Germany, I expect to have half an understanding at best), different states have laws and slightly different taxes. Not as much so as American states, but perhaps more like Newark vs. NYC than Cupertino vs. Sunnyvale.
The difference in taxes is zero or negligible for almost all persons (income tax, VAT, etc. is exactly the same – dog tax probably is the highest difference). Corporations pay less taxes outside city limits.
The most relevant law I can think of is that if you live outside the city limits you might not be able to send your kids to a school in Berlin.
Okay, but suppose I got a job in Berlin - why would I have to live in Berlin proper as opposed to some place out side of Berlin? What is stopping me from getting a place just outside of the Berlin limits?
When talking about city growth, population dynamics and long timescales, do you really believe those administrative boundaries matter in any practical sense?
Paris is one of the densest city in the world (overall, there are denser areas) despite having a cap at 6 floors on building height. (I might be off by a floor or so) At that height the cheapest building technologies* still apply and up is not that expensive.
Now going up to 200 floors is very expensive. However on a per unit area it is only a few times what the cheapest building style* is. So it does require more expensive rent, but not that much more expensive, and as rent gets expensive you expect apartment sizes to fall to balance some of it out.
* cheapest that can meet reasonable building codes. I'm ignoring the uninsulated, fire-prone shacks you see in poor countries which are cheaper by far.
On that basis, I’d be interested to see more grand buildings like those on Frankfurter Tor. While the insides of Soviet era buildings are the targets of German jokes [0], the outsides are grand, and they are more than 6 levels high.
[0] IIRC “if you come home to find your wife has changed her hair and redecorated, you went into the wrong apartment”, according to the DDR museum. I’m sure it lost something in the translation.
That's interesting that Soviet era buildings there have a reputation for being grand outside. In Prague, buildings built in the Czechoslovak Socialist Republic era have a (well-deserved, IMO) reputation for being brutish, simply, and inelegantly built on the outside, especially as compared to the beautiful buildings from the earlier eras.
I mean those specific buildings on Frankfurter Tor look good, not Soviet[0] in general. I think it was where they were showing off, just like the TV tower in Alexanderplatz.
[0] DDR? I’m not actually sure who made the decision, now I think about it
In practice, this almost never happens. There isn't a fixed supply of bread. When the price of bread goes up, the following all happen:
- Bakers will bake more bread
- People from an area with cheaper bread will travel farther to sell bread where it's more expensive
- Individuals will decide to bake bread for themselves
- Companies that don't bake bread but that have the capability of baking bread (either directly, or with minor changes) will start baking bread.
All these activities happen in proportion to the price increase, increasing volume and putting pressure on prices to go back down. And this article describes the data showing that this happens.
Unclear on how claimed price controls would ensure equitable distribution of bread. Why is the price of bread being capped making it so that more people get bread? If I’m rich and the price of bread is artificially low, maybe I’ll just buy up even more bread and now fewer people get bread.
One apartment per person or per family? If per family, is it still per person if the couple is not legally married? If they are married, but divorce, get an apartment each and then re-marry, are they supposed to give up the properties?
What if my nephew from another town moves in to live, it becomes tight… are they eligible too?
There are plenty of places in the world where real estate was/is rationed or distributed, and they all end up having very similar social distortions.
>If they are married, but divorce, get an apartment each and then re-marry
Or more likely divorce to get the apartment, but continue to live as if married except for purposes of that extra apartment. It isn't unheard of for couples to not legally marry today because of the tax difference even though for all social purposes they act as married. That is despite some social pressure to marry.
But at what point does someone try to solve the shortage by baking more bread? If the price rises, more people will open bakeries.
Economics answers 2 questions:
1) Who gets what today?
2) What should people prepare for tomorrow?
Regulating an excessive focus on (1) will get bad results on (2) because it makes it less sensible to be come a baker.
I'm not writing software because I believe there is a philosophical shortage of software. I do it because there are decent odds that I'll be overpaid relative to the work I put need to put in. Those odds are resulting in a lot of software being written.
No, they use it to buy lands, resources, mercenaries to get more land and to keep the status quo. I suppose if you are a mercenary you will be fine (as long as your head is not split in 2)
It is exactly the same right now, with the difference that the crumbles of the pie are enough to feed the people. (Housing, health and education is another story)
Software Engineers are being paid for labor, as are the "starving poor" from the original analogy. However, the wealthiest citizens of the world have been amassing wealth at a comical rate for the past few decades, while the poorest citizens have not, suggesting that "Once the evil rich pigs have lots of bread, more than even they can eat", they in the aggregate do not start using it to purchase labor from the starving poor, they tend to hoard it.
Then you should read the list of famines rather than just looking at the page, because after the invention of fertilizer which brought an end to mass starvation (and was another product of capitalism), the biggest famines in the history of the world have been from communist nations, whereas the main problem in capitalist nations is obesity. Even the homeless here suffer more from obesity than from hunger.
Well sure. But the total amount of people who have some bread is now greater, versus a select few wealthy people getting all the bread they want, as the wretched masses stare longingly. You can either increase total happiness, or concentrate it to the powerful. It's pretty clear by the tone of this article which side the writer lands on.