In addition, there is not a ton of area to just continually build new homes. This leaves builders hoping that home owners will want additions added to their house or improvements of some sort. This is how the housing industry is overall - people buy an old home and renovate it.
This housing dynamic raises the capital intensity of consumption which contributes to an increase in capital share of income. Zoning restrictions are then used to dictate who can live where essentially. It is like a government tool. In order to fix this, one option could be to use the government in order to seize back the surplus of redistribution, which is definitely not the ideal solution. Another idea, as mentioned by the author of this article, says to reform local institutions to generate better zoning outcomes. This would create better living situations for everyone while keeping the economy in check. How to create these institutions is the difficult part.
The housing market could correct itself, but it is highly unlikely. The government probably has the most influence in this situation, so they will need to use their power of zoning in order to help the economy out.
The Silicon Valley is the headquarters for many top technology companies like Google, Twitter. The growth in these companies have led to increase in wealth in this area and also increase in the wealth of the employees. This has led to a rise in property pries.
ReplyDeleteMore people are moving into San Francisco and the amount of property is the same.(It cannot be increased/ created as 3 sides of San Francisco is surrounded by water).
Thus complex rules need to be made before building new houses and old residents should have a strong say in decisions regarding their neighborhood. This could delay if not completely eliminate building of new houses.
With an increase in wealth, its very reasonable to see that individual house and rental prices are high. I don't necessarily think that its a bad thing that only wealthier people can afford to live in San Fransisco. The local government can place higher taxes on the wealthier people of the area. This tax revenue could be used to improve the infrastructure of San Fransisco, making it a more attractive place to live. The high cost of living in San Fransisco may also motivate people (who currently cannot afford to live in San Fransisco) to work hard and strive to be successful so that some day they will be able to live there.
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