Different individuals not only have different preferences or values but also, whatever the degree of equality in their society, face different circumstances. Not surprisingly, these two sets of conditions will typically imply different evaluations of specific social (including economic and political) phenomena.
A banal example is given by a title in yesterday’s Wall Street Journal: “Miami Locals Are Steamed Over Relocating New Yorkers Driving Up Apartment Rents.” The subtitle reads:
Apartment rents have soared 58% in the Miami area over the past two years, and in some cases doubled over last year
Some of the apartments, condos, or houses for rent may belong to “bad” out-of-Miami landlords, but certainly not all. The increase in housing rents brings corresponding benefits to Miami residents who may decide to rent their houses or parts of them. Thus, the increase in rents represents a cost to some Miami residents but a benefit to others. (The fact that it is an opportunity cost for all—housing properties that are not rented out deprive their owners of higher rental incomes—does not change the fact that higher rents represent an increase in the value of any Miami resident’s property; it increases their opportunities.) Why would the Wall Street Journal take side for one group or the other? To play politician?
Bad economics justifies bad politics. Tribalism, “us” against “them,” lurks not far below the surface. A Miami renter complains:
We’re getting pushed out by these people who aren’t native Miamians,” she said. “It’s happening with everyone I know that’s renting.
Miami locals don’t have the same interests regarding the prices of housing, maid services, groceries, or hula hoops. However—and this is the second idea to understand—they do have, like the rest of mankind, a general common interest in prices being determined on free markets so that they transmit the correct signals regarding the relative scarcity of resources and the relative intensity of the demand for different goods and services. General prosperity depends of correct price signals. People have a common interest in being able to make voluntary exchanges that determine these prices. It is true, though, that understanding such a common interest in a free society does require some knowledge of economics, a tricky problem that James Buchanan has pointed out.
READER COMMENTS
Craig
May 11 2022 at 10:44am
“Thus, the increase in rents represents a cost to some Miami residents but a benefit to others.”
Indeed and while I’m not in Dade, I do own a home in Palm Beach County and property values have exploded, in part because of QE of course, but naturally also because of massive amounts of migration. At the moment that is an unrealized gain of course. Of course I too was part of that migration wave from what I now call the “City of Yesterday”
Jose Pablo
May 12 2022 at 6:26pm
“At the moment that is an unrealized gain of course.”
More relevant that the realized-unrealized distinction is the very real increase in your “opportunity cost”. Very likely you can buy now “more stuff” by selling your Palm Beach home that you could before the asset price increase.
That is not always properly understood but your house’s cost (“the consumption you are giving up by owning your Palm Beach house”) has gone significantly up in the last couple of years. Even if you are an owner and do nothing with the asset (actually because you are an owner and do nothing with the asset)
Jose Pablo
May 12 2022 at 11:18pm
” … a general common interest in prices being determined on free markets “
That’s interesting … but the rental market in Miami is anything but free.
For example, in the Miami residential rental market you don’t find multiyear contracts (almost all of them are one year contracts). The Florida Statutes does not ban multiyear contracts from existence. Only says that longer than one-year contracts should be “in writing” … with some interesting caveat later.
Maybe there are no landlords or tenants willing to sign lease agreements for 3 or 5 years. But this is very unlikely. There should be a price and a set of clauses that two free parties can agree upon to lease a property for that period of time.
Maybe it is just that every other person in Florida is a broker, or a realtor and they live from commissions. And commissions are “earned” (so to speak) when contracts are signed.
Suspiciously enough the Florida Statutes Chapter 83: Florida Residential Landlord and Tenant Act says that for multiyear lease contracts “landlords must comply with the common law statute of frauds governing property transactions exceeding one years”. That makes multiyear lease contract more complex requiring the involvement of an attorney, while one year contracts are pretty standard and managed entirely by realtors and brokers.
Markets design and parasites living from this design, severely affect the contribution of markets to the “common interest”. Afterall, “particular interests” (as opposed to “common”) seem to be very relevant in market design and (mal)functioning.
Another classical example is that you need a license from the State of Florida to be a hairdresser in the State (to avoid irreparable damage to a voter’s hair, I guess). Last time I checked the test you have to pass to get this license included a chapter on “the history of hairdressing”. It seems that having a basic knowledge on how the Romans and the Greeks did their hairdos is key to a safe and well-functioning haircut market in Florida.
Jon Murphy
May 13 2022 at 7:15am
I don’t think the lack of multi-year leases indicates the Miami market is not free. Two reasons:
First, it’s quite common that leases are year to year. I’ve been renting for over 10 years now in multiple states (MA, NH, VA, MD, NY, NC) and I’ve never gotten (nor wanted) a multi-year lease. The lack seems more like a market development to adjust for risk, rising costs, and demand
Second, as you note, there are no prohibitions on multi-year leases. It’s true that there are higher policy induced transaction costs for multi-year leases, and on the margin that may reduce the number. But those costs appear quite minor from what you say. It seems unlikely to me that they are restricting the market to the degree you suggest
Jose Pablo
May 13 2022 at 7:33am
And yet the multiyear market does not exist …
The hypotesis that there is no interest in that product (either from the offer or the demand side) is certainly posible but very unlikely.
“A market development to adjust for risk, rising costs, and demand” would, very likely, change the median length of lease terms when these factors change. That does not happen.
The maze of legal complications and the particular interest of realtors and brokers are plausible reasons.
Jon Murphy
May 13 2022 at 7:45am
The fact that the market does not exist does not imply that the market is not free. All it implies is MC>MR. You won’t find a market for glass-filled pies, either, but that doesn’t imply the market for glass-filled pies is not free.
And yet it does. That alone explains the relatively short time for certain leases (residential housing, student housing) and the relatively longer time for other leases (commercial).
Jon Murphy
May 13 2022 at 8:25am
Let me put my point slightly differently:
I agree with the idea that such legislation as you discuss could have an impact on the length of leases in Miami. What I question is how big the impact truly is.
I think the fact that the average length of a residential lease country-wide is just under a year is strong evidence against your thesis that the restrictions in Miami have a major impact. The market for multi-year leases likely just isn’t there, and there’s no reason to suspect they would be in a hot market like Miami.
I’d like to see more evidence of your thesis. If, for example, we can show that Miami leases are shorter than leases country-wide, that would help your case. Additionally, if most Miami leases are not written contracts, that could also boost your case.
Jose Pablo
May 13 2022 at 9:20am
I was not trying to point out a specific feature of the Miami’s residential lease market. It is just the one that I am familiar with.
I have little doubt that residential markets are over-regulated everywhere. They are just too politically sensitive to resist the temptation.
The incompleteness of these markets (in Miami and beyond) as far as terms are concerned is striking.
Risk, cost and demand are not the drivers of the prevalent residential lease terms since those drivers change overtime and the overwhelming prevalent term of the leases, for this particular market (the ones you mention are other animals), don’t.
But I agree with you, maybe there are other reasons apart from regulation and from the rent seeking abilities of little value-added professionals involved in the transactions. The stickiness of habits and a lack of innovation could also be partially to blame. Over regulation does not help with those either.
Pierre Lemieux
May 13 2022 at 3:23pm
I would add one point to the interesting conversation between Jose and Jon. It is not because some mild government intervention slightly increase transaction costs that we can conclude that the market is not free–although, certainly, intervention does justify this implication past a certain point. For example, some common law requirement may seem to increase transaction costs although, from a more systemic perspective, it may be (or not, of course) part of the institutions that buttress a free-market society. At any rate, a freer market is better than a less free one, even if it is a matter of degree that is impossible to measure.
Comments are closed.