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Culture War Roundup for the week of January 29, 2024

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How would it work when the supply of land zoned for residences is inelastic?

In such a case we are talking about incumbent landholders who did not assess their property as high as it is theoretically worth because they did not wish to pay higher taxes. The purchasing firm will take a relative loss in cash flow by setting it at that higher assessment (and remember, higher land taxes are not passed on to tenants, so even if the old residents move back in their rents will just be their previously unrealized imputed rent) and are presumably willing to do so because they believe they can make more money than the previous incumbents even given higher taxes, which requires some kind of productive change in property use, which entails more efficient allocation, which is largely the point of COST. In any case, it's interesting many of the critiques of Radical Markets take the form of "what if rich people buy out xyz?" when it is not clear what it even means to be a rich person in such an economy, when they don't own anything in the traditional sense of the term.

In such a case we are talking about incumbent landholders who did not assess their property as high as it is theoretically worth because they did not wish to pay higher taxes. The purchasing firm will take a relative loss in cash flow by setting it at that higher assessment (and remember, higher land taxes are not passed on to tenants, so even if the old residents move back in their rents will just be their previously unrealized imputed rent) and are presumably willing to do so because they believe they can make more money than the previous incumbents even given higher taxes, which requires some kind of productive change in property use, which entails more efficient allocation, which is largely the point of COST.

They didn't want to pay higher taxes because they lived on it and didn't derive any profit from it beyond living close to their workplace.

For a more concrete example, let's say there's a large factory and a town that is mostly settled by people who work for this factory or provide services to the workers. All the land around the factory is zoned for agriculture. Every house is owned by its residents, is worth $100K and everyone pays $1K in property taxes.

Company X buys every piece of residential property in the town for 100K, sets the new valuation at 300K and offers to rent them back to the former owners for $13K a year, with every house paying them $10K a year, 10 years to break even

The owners have three options:

  1. get a loan for 200K and buy their property back.
  2. start paying rent. They start losing money after 7.7 years
  3. buy land from the farmers, build new houses, move in there, start commuting through a ghost town and leave Company X with empty properties

Option 3 sounds like a perfectly rational way to punish Company X for trying to squeeze, but this depends on coordination between the former homeowners. If one third choose option 1, Company X immediately breaks even and can sell the rest at any price. If one quarter chooses option 2, Company X will not be losing money on this venture and can slowly deal with the rest of the homeowners. And if rezoning is hard or impossible, it's not even an option.

And what's worse, none of the options actually improve the productivity of the properties.