Real estate
Consumption goods are often production goods
Nov 7th 2011, 15:14 by R.A. | WASHINGTON * *
WHEN you buy a computer, is that a consumption good or a production good? Think about that, then read this Megan McArdle post on how residents of expensive cities shouldn't complain about their relatively low real wages:
The fact is that living in an expensive city is a consumption choice.
You hear this argument all the time from people in New York. "Rich? Hah! We've got four people in 1600 square feet, and our school bills are going to put us into bankruptcy." Many New Yorkers believe that they should be given some sort of income tax abatement because of the expense …show more content…
Infrequent readers can visit this post for a taste of the argument. Given my interest in this area, I was (let's not say overjoyed) intrigued at the arrival of this new NBER working paper, entitled "Metropolitan land values and housing productivity" in my inbox. Best news: the paper provides more evidence in favour of my general …show more content…
Cities in which the gap between input costs and housing costs is low are productive in housing while those with a large gap are housing unproductive. Unsurprisingly, productivity is negatively correlated with geographic and regulatory constraints, and with housing costs. And unsurprisingly, hotbeds of NIMBY sentiment like San Francisco and Boston are very unproductive in housing. Among large metropolitan areas the five cities with the highest housing productivity are Houston, Indianapolis, Kansas City, Forth Worth, and Columbus. California accounts for the five lowest productivity cities (and the Bay Area for the worst three): San Francisco, San Jose, Oakland, Los Angeles, and Orange County.
What's particularly interesting about the paper is its analysis of housing productivity vis-a-vis productivity in output of tradable goods. While it's occasionally assumed that the two are two sides of the same coin they are in fact negatively correlated. Cities with high productivity in tradable goods, like those in the Bay Area, have among the lowest housing productivity. Which results, of course, in high housing costs and—shifting to my argument—migration away from places productive in tradables and toward places that build a lot of