As you hint, the answer to your question depends on empirical facts.
Suppose allowing more building thanks to upzoning would really make the economy grow (perhaps also because there would be more immigrants), then you might very well have both the aggregate value of land and buildings go up in the long run.
(In reverse, if we downzoned to make nearly all buildings illegal, we would expect that both land and buildings would drop in aggregate value over the long run. Especially as people migrated to less crazy countries.)
That was just the easiest example I could cook up. My point is that your question doesn't really have a single answer. For an answer guided by theory, you need to add more assumptions. For a realistic answer / forecast, you need to add more empirical data.
For example, the elasticity of housing demand is very important. I think it's fairly elastic on the margin: people can always do with a bit more space (or make do with a bit less space to save money), or young people can move out slightly earlier (or slightly later); demand from AirBnB and friends also seems pretty elastic.
That’s one of the insights I am trying to build here. Demand elasticity is very income sensitive and most of the increase in aggregate real estate value in the U.S. is motivated by a subset of the population being beset by very inelastic supply conditions and having very inelastic demand. That’s the only way you get cities with widespread double digit price/income ratios. At the other end of the spectrum, you’re right, households respond to supply constraints by compromising on amenities. That’s why I said you’re probably right in the very long term. The trigger for extremely high housing costs is more of a friction than a permanent condition. Eventually by accepting displacement or moving into worse units, families will reorient themselves to a much less equitable distribution of housing consumption if we maintain the current policies, and once they’ve worked through the frictions, they won’t even notice that it’s different.
I suspect that a big part of the disconnect is from the highly regressive shape of rent inflation, which I think you would only be able to pick up by tracking individual household expenses in some sort of panel data. Low end wage growth has been high, but it's mostly being eaten up by rent.
I'm glad I didn't participate in this poll--I would have chosen "B" and been wrong. My excuse is that I tend to view all architecture as a continuously depreciating factor in real estate because that's the reality I face as an architect and a homeowner. In fact, I'm so cynical that I see many buildings in urban areas as having negative value with respect to the potential value of the land they're occupying. The underoccupied or abandoned strip malls that litter America are impediments to housing creation, especially when they're located in zoning districts that mandate low-density crap like that.
Most homeowners have an incentive to object to any upzoning changes, even when there is a strong potential upside to their community for redevelopment. Scarcity skews home values upwards in just about any location; even in downtrodden areas.
As you hint, the answer to your question depends on empirical facts.
Suppose allowing more building thanks to upzoning would really make the economy grow (perhaps also because there would be more immigrants), then you might very well have both the aggregate value of land and buildings go up in the long run.
(In reverse, if we downzoned to make nearly all buildings illegal, we would expect that both land and buildings would drop in aggregate value over the long run. Especially as people migrated to less crazy countries.)
Over the very long run, I think you might be right.
Thanks.
That was just the easiest example I could cook up. My point is that your question doesn't really have a single answer. For an answer guided by theory, you need to add more assumptions. For a realistic answer / forecast, you need to add more empirical data.
For example, the elasticity of housing demand is very important. I think it's fairly elastic on the margin: people can always do with a bit more space (or make do with a bit less space to save money), or young people can move out slightly earlier (or slightly later); demand from AirBnB and friends also seems pretty elastic.
That’s one of the insights I am trying to build here. Demand elasticity is very income sensitive and most of the increase in aggregate real estate value in the U.S. is motivated by a subset of the population being beset by very inelastic supply conditions and having very inelastic demand. That’s the only way you get cities with widespread double digit price/income ratios. At the other end of the spectrum, you’re right, households respond to supply constraints by compromising on amenities. That’s why I said you’re probably right in the very long term. The trigger for extremely high housing costs is more of a friction than a permanent condition. Eventually by accepting displacement or moving into worse units, families will reorient themselves to a much less equitable distribution of housing consumption if we maintain the current policies, and once they’ve worked through the frictions, they won’t even notice that it’s different.
OT but in the ballpark---
https://www.theatlantic.com/ideas/archive/2024/06/us-economy-excellent/678630/
You have to read this paean to the US economy all the way to the second to last paragraph...oh, that.
Can't buy a house, afford health insurance, college for the kids, and two-parents working need expensive childcare...
But be happy!
I suspect that a big part of the disconnect is from the highly regressive shape of rent inflation, which I think you would only be able to pick up by tracking individual household expenses in some sort of panel data. Low end wage growth has been high, but it's mostly being eaten up by rent.
I'm glad I didn't participate in this poll--I would have chosen "B" and been wrong. My excuse is that I tend to view all architecture as a continuously depreciating factor in real estate because that's the reality I face as an architect and a homeowner. In fact, I'm so cynical that I see many buildings in urban areas as having negative value with respect to the potential value of the land they're occupying. The underoccupied or abandoned strip malls that litter America are impediments to housing creation, especially when they're located in zoning districts that mandate low-density crap like that.
Most homeowners have an incentive to object to any upzoning changes, even when there is a strong potential upside to their community for redevelopment. Scarcity skews home values upwards in just about any location; even in downtrodden areas.