A quarter acre lot in San Francisco should cost a lot more than it does.
A three bedroom home in the Bay Area should cost a lot less than it does.
We’re staying in a place this summer that fits both. It’s too cheap and too expensive.
Anyone with half a brain can see the stupidity of NIMBY planners in SF who restrict new construction, renovations, and rentals such that housing prices are nuts. A seven mile square area with huge demand and hardly any structures taller than three stories is crazy. The overpriced properties are easy to spot, and so are the reasons why.
But regulations have even more bizarre consequences. They create both surpluses and shortages. Under and overpricing, mixing all the signals that emerge in a free market and help people adjust resources and behavior to create the most winners and biggest wins.
The house we’re staying in is a great example. The owners weren’t allowed to rent any of it out for five years, even though it has three separate floors with separate units. (They can’t even replace the windows to allow more airflow when it gets hot.) Forget tearing it down for something that can house more people. This quarter acre slice of property is stuck with the shell of a home left here decades ago when demand was much lower.
This drives up the price of the unit as a single family home, making it overpriced in that category. But as a quarter acre city lot, it’s underpriced. The value of this lot for a multi-unit apartment or condo complex has to be many times greater. But it can’t be put to those uses, so it remains a stupidly overpriced house and tantalizingly underpriced piece of property.
What Hayek called the pretense of knowledge on the part of city thugs is visible everywhere here, creating what Mises called planned chaos.