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Some assumptions here, two stated and one implicit, are dubious. The stated assumptions are that different cities are equally attractive and unequally plagued by nimbys. The unstated assumption is that the average price is equal to the marginal price of new supply. This is not true for housing in supply-short cities, because (1) you can only build new housing, not old housing, (2) zoning prevents you from replacing single-family houses with more valuable land uses, and (3) geometry requires new single-family houses to be farther from the center than old ones. (It probably works better for cities like Detroit and Cleveland where the marginal unit of supply is an old house not abandoned.) I blogged an even-more-back-of-the-envelope analysis that assumes unequal attractiveness and equal nimbyism between cities. The assumptions of my model aren't exactly right, of course. Exurbs in Boston are much more zoning-constrained than the other cities I looked at, and a commute from Modesto to San Francisco or Palo Alto is probably worse than from Cypress to Houston. Nevertheless, I think my model fits the facts better. My conclusion is that high housing prices result from two shortages: a shortage of housing units in attractive city neighborhoods (due to nimbyism) and a shortage of attractive city neighborhoods (due to underinvestment in transit, automobile-centered street design, 1950s-style architecture & planning, and nimbyism too).
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Aug 14, 2016