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Tag Archives: 09. Long-run equilibrium

Restrictive zoning causes segregatation in Connecticut

Restrictive zoning--90% of Conneticut allows only (expensive) single-family homes--limits supply, especially of lower priced housing like apartments, and drives up the price.  From Vox:According to one measure by researchers at the University of Pennsylvania’s Wharton School, Connecticut has the 15th-most regulated residential building environment. In doing so, it has confined poorer people to small parts of the state and likely discouraged countless more from ever moving to the state.The...

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Is the recent 10% house price increase going to stick?

Last year, house prices in my zip code increased by about 10%; and they are forecast to increase another 10% this year.  This "tightness" or "seller's market" is indicated by the small available supply relative to demand, as indicated by the 2.1 months of inventory.  [NOTE:  months of inventory=(# houses for sale)/(selling rate per month)].  In the scatter plot below, we see that an inventory of 2.1 months (vertical axis) is normally associated with about a 1.5% monthly price increase...

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Which cities have the cheapest house prices?

From chapter 9, we know that in the long run a mobile asset has to be indifferent to where it is used, otherwise it will move.  This long-run indifference principle means that in the long run, you should be indifferent about where to live and whether to own or rent.  In particular, the price-to-rent ratios should reflect this "indifference," and be  similar across cities.  However, this is is certainly not the case.  Here are the most expensive cities:CityPrice-to-RentRatioHome Price(for a...

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Housing Bubble-ology: is this time different?

Famed Bubble-ologist Robert Shiller called "bubble" on the housing market in 2006 based, in part, on graphs like the one above, showing the relative prices of owning relative to renting.  We know from Chapter 9 that, in long-run equilibrium, a mobile asset has to be indifferent as to where it is used, otherwise it will move.  Here, think of the mobile asset as either people, who can rent or own, or houses and apartments that can be rented or sold.  In the graph above, the current housing...

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Consequentialist critique of California Housing Policy

 in the NY TimesThis is a crisis that reveals California’s conservatism — not the political conservatism that privatizes Medicare, but the temperamental conservatism that stands athwart change and yells “Stop!” In much of San Francisco, you can’t walk 20 feet without seeing a multicolored sign declaring that Black lives matter, kindness is everything and no human being is illegal. Those signs sit in yards zoned for single families, in communities that organize against efforts to add the new...

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Wage Floors move Grocery Workers to Lower Valued Uses

The LA Times reports that, when the city of Long Beach imposed $4 an hour additional hero pay, some super markets decided to close instead.Kroger, the owner of Ralphs, Food 4 Less and other retailers, said Monday that it would close two stores in Long Beach in response to city rules mandating an extra $4 an hour in “hero pay” for grocery workers during the COVID-19 pandemic. In addition to the Ralphs, the company will close a Food 4 Less on East South Street. The moves will affect 200...

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Are Stocks over-valued?

Earlier we noted that Shiller's CAPE (cyclically adjusted P/E ratio) is the second-highest its ever been  behind only the tech bubble of 1999.  And now Goldman is telling its clients that there are other signals that the market may be over-valued, e.g., the growth of SPAC's, and the big increase in prices of stocks with negative earnings, indicating an expectation of future growth.  Nevertheless, Goldman seems to think those expectations are right:"we expect modestly higher rates will be...

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Did Warren Buffett finally read Chapter 9?

He is applying the "indifference principle" to criticize high tax states with unfunded pensions.  From Zero Hedge: “If I were relocating into some state that had a huge unfunded pension liability, I’m walking into liabilities.. And those are big numbers. Really big numbers.. They will come after corporations. They will come after individuals.. They’re going to have to raise a lot of money.” BOTTOM LINE:  A mobile asset, like labor, will move to where it can earn the most. ...

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Nice summary of the affordable housing crisis

in the Stanford Law Review: [the cause of the affordable housing crisis] is uncontroversial among urban economists but not broadly understood by low-income families, advocates for low-income families, housing activists, and their allies in academia, policy, and government—in short, the housing advocacy community. In the face of higher housing costs, the housing advocacy community tends to argue for a “kludgy” set of policies that can actually prevent new development and end up increasing...

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