Bryan Caplan  

The Seen and the Unseen: Wegmans, Manhattan, and Slow Growth

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Economists have a favorite cynical explanation for the slow-growth movement: Property owners are trying to raise real estate prices by restricting supply. I'm no mind-reader, but I doubt that's the real motive of most opponents of further development. But in any case, the effect of slow-growth on real estate prices is a lot less obvious than you think.

Wegmans grocery store just opened in my neighborhood. It's a great place to buy your groceries, and the food court is excellent. Now consider: What effect does Wegmans' existence have on the value of my home? Clearly, to increase it. People want to live near good shopping. So if Fairfax County denied it permission to open, I'd be worse off, even though I'm a property owner.

Now think a little harder. Would Wegmans have opened if the housing stock in my area were not skyrocketing? Maybe, but it's far less likely. So when the forests down the street from me turned into McMansions, it wasn't just an increase in the supply of housing, depressing the value of my property. People moved into the housing, increasing the demand for retail, raising the quality of life in the neighborhood, and thereby raising the value of my home. The net effect? I'm not sure, but I suspect its positive. (And that isn't even counting the larger number of potential playmates for my kids!)

Bottom line: Not only is slow-growth bad for people who want to buy; it could easily be bad for people who already own.

If my suspicion is correct, does anyone benefit from restrictions on growth? The strongest candidates, strangely, are property owners in competing areas. If Oakton shut down Wegmans, some people who would otherwise have moved here may buy in Bethesda (a similar area 40 minutes away in Maryland) instead. Demand for Oakton goes down, demand for Oakton substitutes goes up.

Edward Glaeser, Joseph Gyourko, and Raven Sachs have an interesting new paper asking Why Is Manhattan So Expensive? They blame high real estate prices on land use restrictions. Maybe they're right, but I wonder if real estate deregulation wouldn't drive prices even higher. Or to be more precise, I suspect that deregulating Manhattan real estate markets would lead to more affordable housing - in Hoboken, Brooklyn, and Staten Island!


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COMMENTS (6 to date)
Ronnie Horesh writes:
If my suspicion is correct, does anyone benefit from restrictions on growth?

What is interesting here is the assumption that higher property prices = benefit. Isn't this the same as assuming that nothing has value unless it's marketable?

Edge writes:

There are certainly places where property values are higher because of significant restrictions on growth. Often adjacent to watershed land, where undeveloped land is typically the cheapest way to provide large quantities of high quality drinking water.

There are plenty of other places where property values of housing is higher because housing is segregated from commercial, industrial, and the like. And lower, where rational planning has not happened.

Without even getting into the non-financial aspects of planning.

Lawrance George Lux writes:

Bryan,
I live in a 'Slum' area of Columbus, NM. Services are ancient, Unemployment is 70%, the nearest hospital is 35 miles away, Shopping an equal distance, with only four local restaurants. Property pricing is far below National average, and Housing is mostly inferior.

We have only one problem: People continue to move here! Our RV Parks fill every winter, but a disappointing number choose to stay Year-round. They are beginning to ruin the Scenery with their development projects. lgl

Brad Hutchings writes:

Slow-growth is zero-sum thinking. The earliest example I remember from growing up in the slums of upscale Danville, CA (SF Bay Area) was that they wanted to put a Costco in and extend a dead-end street past it to San Ramon, the town immediately south. We lived about 1 mile up that street. One way to get to San Ramon was to go through neighborhoods a couple miles to the east. The other was to cross the 680- freeway to the west. The people in the neighborhood to the east wanted the road to go through because they were tired of the traffic through their streets. The people near that dead-end street wanted to keep it dead-end. Nobody wanted the Costco (arguably the WalMart of its time). The battles were bitter.

10 years later (1997-ish), the Costco was thriving and everyone shopped there. The street went through and everyone used it to get to the southbound 680. Property values were up three to four fold. Everyone loved the Costco and some of my high school classmates were career employees there. And everyone was happy. But at the time, I was sure there would be a war.

Paul N writes:

Of course land in city centers is intrinsically more valuable than land in the exurbs because of density of services, culture, etc, but there is strong evidence, and I strongly believe, that growth restrictions, motivated by existing property holders, are the primary reason for elevated house prices. The obvious way to check is to do as Glaeser does in the paper Bryan cites: compare actual prices to their supply (construction+land) costs. In NYC, actual condo prices are more than twice what it would cost you to buy land and build a high-rise on it - how can that not be from building restrictions?

cameron writes:

I live in Oregon and went to a talk by a Reed econ prof who was doing a econometric study of how urban planning in Portland, OR had effected property value. The results where very early in the study so i am not sure what the very end result was, but at the point where she gave her talk to a small group of econometric students she had found basically a small positive inpact on property value from the restrictions/planning or urban growth.

My personal experience with land use planning is that these restritions help creat livable communities.

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