Econ Duel: Why Is the Rent So Damn High?

You’ve no doubt heard it before: the rent is too damn high!
In major cities across the United States, rent prices have been skyrocketing for some time. As a percentage of median income, rent is much higher for those that choose city life over suburbia.
But why are rental prices in these cities so expensive, and what can we do about it?
It’s a classic case of supply and demand: lots of people want to move to big cities because of the opportunities they afford. Naturally, they demand housing. But the supply is often short due to many factors, from geography to regulations. What does economics tell us happens when there’s a lot of demand, but not so much supply? Prices rise. As a consequence, many people are priced out of pursuing the lucrative opportunities available in major cities.
Coastal cities, like San Francisco and New York, have obvious geographical restrictions on building “out.” One way to deal with this problem is to build upwards with more skyscraper housing. This often isn’t feasible due to regulations on building heights, density, parking requirements, etc. But these regulations could be lessened or removed, allowing big cities to become denser and lowering rent prices. Lifelong city-dweller Matt Yglesias discusses this approach in this Duel.
On the other side, Tyler Cowen, who has always lived in the suburbs, argues that allowing cities to become denser may only provide a short-term solution. As more people move in, the cities become more productive with higher incomes for their inhabitants. And the rents rise again.
Of course, we’ve merely skimmed over the arguments here, and you’ll have to watch the Econ Duel to get the full picture! Check it out and let us know in the comments who you think makes a better case.
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[@MichaelAllenSmith]

From Tyler's 12/14/2016 blog: "I should note that the debate nature of this video is for instructional purposes, and I do in fact agree with Matt more than I let on in the exchange itself."

[@MatthewGraham027]

This was not even an argument. It seems that Cowen was playing devil's advocate. Do economists really disagree with Matt's argument that we should allow more buildings in high productivity areas? To go along with the ugly/tall city. Imagine we allowed cities to grow to become as dense as Paris. Does anyone think that Paris is ugly? Why can't LA become more like a modern Paris? Go Matt!!

[@Guizambaldi]

Do you think Paris is dense? Well...not dense enough...they have strict legislation too. Go check the rent in Paris' arrondissements...

[@chinguunerdenebadrakh7022]

@@Guizambaldi Paris is literally the 30th most dense city in the world. It could be better, but it still has about double the density of NYC (Paris proper 21000/km2, NYC proper 11000/km2; Paris urban area 3800/km2, NYC urban area 2100/km2). And NYC is the densest city in the USA (over a 100000 population). San Francisco proper is more at 7000/km2.

[@nacoran]

Could you discuss Land Value Tax relating to this?

[@LeviDanielBarnes]

Having spent time raising children in the bay area, I witnessed a lot of people buying a school district more than a house. Could school choice be part of our solution?

[@madridmusic3948]

I put this video in my list of see later and now in 2023 this videos makes more sence

[@jacoblucas3026]

No mention of the land value tax, and how the suburbs would move closer to the city center, given the infill LVT would create. This would satisfy Matt’s and Tyler’s concerns. Singapore is as dense as Calcutta, but Singapore doesn’t feel congested. They get half their revenue from land.

[@Lugia0011]

This felt less like a duel and more like an interview. Still, a very interesting topic and discussion.

[@MatthewGraham027]

Could we get a video on moving. One of the arguments made was that people could move to whatever place they want. Have there been studies on the effects of movers on themselves and their families? If international migration is great for the movers, then how about inter-state migration? If being in the right place is so important, (and thus zoning so detrimental) then why don't policies incentivize moving to a different city/state? I would like to see this from a personal viewpoint (from the mover), to the larger community on economic growth, inequality etc.

[@nacoran]

I think the weakness in Tyler's argument is that in any community there are going to be high wage earners and low wage earners. If the low wage earners move to another city those jobs... the barista, the teacher, etc. won't have enough people to fill them. (Of course, maybe mechanization will fill those jobs... which leads to the scary prospect of cities that can afford to even more effectively push their lower income residents out of the city.)

[@granthall1235]

Does Tyler Cowen really believe the things he's saying?

[@MarginalRevolutionUniversity]

Hi Grant! Tyler was playing Devil's advocate a bit in this one. He posted the following on the Marginal Revolution blog today: "I should note that the debate nature of this video is for instructional purposes, and I do in fact agree with Matt more than I let on in the exchange itself." -Meg

[@UnchainedEruption]

Marginal Revolution University Yeah the questions and even the responses did feel rather scripted.

[@calstone33]

Marginal Revolution University us

[@dragonofparadise]

I hate it when people have the "not in my backyard attitude". Major cities need large skyscrapers to reduce the cost of living by increasing the housing supply period. If the rich don't want low-income housing I say move and let them do everything by themselves. When the cost of living increases past a certain threshold I take my money and services and leave and many others are doing the same. Soon employers won't be able to find employees in places like San Francisco and the city will implode.

[@aoeu256]

Telecommuting with vr and more stable internet. Also make more cities.

[@juniorpilex]

People move to where the businesses are. Spread the businesses throughout the available area that people will do the same. But currently, everywhere in the world, there are always big concentration of businesses in relative small areas. That must be efficient in some aspects, maybe many, but it is not sustainable. We should at least try to balance both. Specially in big countries like US and Brazil. Both have more than enough plenty of area to grow and develop. It makes no sense for these countries having such congested cities.

[@romelidamateo1227]

Agreed

[@chinguunerdenebadrakh7022]

Calling business concentration unsustainable is honestly laughable. What is unsustainable is unrestrained taming of nature from non ceasing growth.

[@madridmusic3948]

I think that increase on taxes and high cost of living would make the talent to migrate to other cities and we are looking that with San Francisco and Austin and Texas in general where is affordable housing. And we dont even talk about REITS and their capability to leverage and how they compite with their families in order to buy houses

[@Mikey-fi8bb]

We have this problem because those people earn more and more people wanted to move there. So what as long as people don't want to move there next time around we wont have this same problem again? You asked him if we'll have this problem again in another generation and his answer was basically "yyyyyyyyyyyyyyyyyyeesss" . Lowering our standards to deal with the same problem again later does not sound like a good idea ever to me.

[@DimitrisAndreou]

The guy on the right is right

[@bluelotus.society]

There need to be rent cost regulations in place, or a lot more public housing, simple.

[@bluelotus.society]

Just let people move to whatever city they want? Sure, that's way easier said than done. Most people can't just pick up their job, family, friends, and their entire life to move.. and most Americans don't even have the savings for it.

[@emperoralvis6559]

2 big banks own something like 30% of the houses on the market. That’s partly why it’s so expensive. It’s a scary investment because if they decide to sell and dump thousands upon thousands of homes on the market the real estate market will crash and there goes your investment.

[@tiendoan1333]

They own it to either sell it or treating like some kind of investment. We want them to do the first, and punish the latter using a land value tax

[@alvingordon25]

Just because you make more money. Doesn't mean you're rent should go up.

[@bird175]

at 4:00 Matt didnt answer the primary question, he totally dismisses the concern of what makes a NIMBY, and so wont solve the problem

[@personzorz]

Too much debt and speculation on housing as a financial instrument.

[@justinstuckey3734]

Can't say I came into this video expecting to see Matt Yglesias arguing for free markets and Tyler Cowen arguing against them (though I realize Cowen was playing devil's advocate)

[@BDizDaBest]

Matt is taller than I thought

[@MRCKify]

Will Nassim Taleb be in a duel?

[@MarginalRevolutionUniversity]

It's not in our current plans, but that would be cool! Thanks for the suggestion. -Meg

[@MRCKify]

I was reminded of some of his views rewatching "Development Economics" playlist.

[@andjelkogasic2397]

Marginal Revolution University

[@edasen4331]

Andjelko Gasic d66

[@highntight845]

Yglesias talking about econ..lol that's rich

[@chrissilber7135]

Yeah typically I think Yglesias is just repeating Paul Krugman's Keynesian talking points, but on the subject of governments artificially restricting supply in urban areas he's right on and it's a rare case of him fingering regulatory intervention as the problem. Maybe he's experienced the consequence of out-of-control housing prices himself and that was enough for him to see the problem for what it actually is.

[@Ryan-kh9xn]

Matt believes in the free market!

[@jmitterii2]

Free market doesn't exist. All markets are a set of rules. People advocating "free markets" are one sided usually mean the right to fuck each other which always is ruinous for society in general.

[@bencilbusher5070]

jmitterii2 its a free world, but that doesn't mean you can kill anyone you please. oh, but because murder is illegal that means it's not a free world.

[@petelebu]

bull shit, its because an enormous section of the market is owned by banks, and banks can charge whatever they want as the bank owners dont depend on rent only to make ends meet.

[@jamesoswald1732]

A central premise of the Tyler (Tyrone perhaps?!?)'s argument is false - higher density increases land values. The most valuable land, if density were bad, would be the Dakotas, Montana, upper Saskatchewan, etc. Clearly that's not the case. The most valuable land on planet Earth is the most densely populated land, pretty much without exception.

[@nathansmith3244]

Simple.. bad human planning and bad design. If buildings were built connected to one another think skywalks but on every floor. and you expanded the city say a mile in each direction. you could easily increase the available living and working space by 4x current. But nope... bad design and no one thought ahead.. except maybe real-estate owners.. knowing you could make a fortune on limited spaces.

[@nacoran]

You're not Nathan Smith! I'm Nathan Smith! One of the big things that will change density will be improvements in elevators. For years now they've talked about elevators that will be able to move from one shaft to another, like cars on a multi-lane road, so they aren't wasting so much space.

[@nathansmith3244]

lol, yes that and if you create skywalk system with a shuttle system you could move people 12 miles out move at 24 miles an hour and be to work in 30 min or less on a lesuirly ride.

[@aoeu256]

Kowloon Walled City but with blue lights hmm hmm

[@dtlocke]

You know you’ve drank the capitalist kool-aid when you describe DEregulation as a tax-increase on the rich. 🤣

[@TheReasonableSkepticist]

« Capitalist kool aid », people keep talking like capitalism is evil and it’s honestly freighting

[@realkosherpork9223]

Yeah, rich companies often benefit from regulatory capture.