Articles on : INFORMATION Expensive Cities Caused by Too Much Gentrification? READ HERE
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INFORMATION Expensive Cities Caused by Too Much Gentrification? READ HERE
Has New York City become too nice of a place to live? In this piece, Emily Badger embraces a Goldilocks point of view. If New York City real estate is porridge, then the "porridge is too hot". Ms. Badger bemoans that New York City renters are being priced out of their city. This view suggests that she believes that renters have a property right to live there at "their old rent level". But is that true? Does she propose that NYC increase the number of rent controlled apartments so that incumbents won't be priced out? This would be a takings from those who own these buildings.Who holds an equity stake in a rising city? Is it the land owners in the city or the incumbents who lived in the city? For those of you with a taste for Karl Marx, I hope you see the analogy to whether capital or labor benefits from dynamics shocks.
For those of you who didn't sleep through your economics classes, this is classic example of "economic incidence". When there is "new news" (whether it is good ---- Wall Street is booming or bad ---- the murder rate increases to an all time high), the owners of assets such as land are the ones who either gain or lose based on the content of the news. Since land is in scarce supply in Manhattan, rising international demand to live in NYC raises local prices.
What is to be done? As shown in my PNAS China Bullet Train paper, faster trains would partially address her concern. Downtown Philadelphia could become a NYC suburb if the train between the cities moves even faster.
Another way to address her concern is to allow for more high rise buildings in NYC and to allow for micro apartments to reduce the square feet in apartments. As Ed Glaeser has argued, NYC has designated too many buildings to merit historical preservation status and this has slowed down the increase in housing supply.
Ms. Badger appears to want to build a wall around NYC to keep the outsiders out as they bring their wads of cash and bid up prices so that the 99% are priced out. This raises a fundamental issue; how should scarce assets be allocated across different people? If you reject the pricing mechanism as the means for allocating such resources, what alternative approach do you embrace? Do you root for a new fair dictator to emerge and redistribute ill gotten gains to the people? That experiment has been tried before!
While economists teach generations of students that one's wage equals one's marginal value product and that capital gains represent the returns for patiently investing rather than consuming early, more and more people appear to believe that the 1% stole their money from some honey pot and that due to general equilibrium effects that the consumption behavior of this 1% are pricing out other people. To regain trust from society, perhaps each member of the 1% should post a Youtube video explaining how they earned their money and how they have contributed to society.
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