Do Old Houses Behave More Like Classic Cars?

Matthew Yglesias has used analogies similar to this in the past to describe how, theoretically, looser development restrictions should be in the benefit of existing home owners. One would think that these existing homeowners would benefit from tight regulations. In actuality, unbundling the complex good of "housing" as a physical depreciating product located on a speculative land investment, one sees why being able to do more with that land would be more advantageous to someone who owns it.

This applies to the vast majority of housing stock in the United States, but things begin to fall apart when you look at the very urban areas that are most affected by high rents caused by supply restrictions. Maybe a suburban tract home built in 1994 is a depreciating asset, but a Brooklyn brownstone is a collector's item.

Discounting the location and condition of a house, a house with historical charm and "good bones" will be worth more than a similar sized modern house. At first brush, it would seem that a historical house may behave similarly to a collectible car: depreciating at first and then appreciating as it becomes more classic and rare. But, there are a few more effects going on here.

There are two countervailing effects I can think of that effect historic houses in a neighborhood. First, lets ignore the positive externalities dense construction provide (stick with me here...) and consider only the fact that new construction is valued less than historic construction. As a neighborhood gets more and more new construction, the neighborhood as a whole begins to decline in value, which in turn causes each of the house + land bundles to decline in value as well. On the flip side of this, imagine being the one leafy side street with handsome townhomes in a neighborhood of imposing apartment buildings. Your house is now a collector's item, and even before taking into account the positive externalities of densities, your townhome would have positive price pressures because it is now a rarity.

One thing that's clear from all of this is it's slightly incorrect to put off more aesthetic concerns like this as people not thinking about money, as Matthew ends his article with. The complexities explained in his last article are not only non-economic concerns such as condo laws, but real forces that can be accounted for along with the speculative qualities of land and the depreciating nature of many houses.

I still believe these effects are smaller than the broader ones Matthew describes, but the fact is they do exist. A NIMBY's fear is that these considerations are not being taken into account at all, and more economically minded people would rather bulldoze a neighborhood into sterile oblivion in the name of progress.

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Measuring the Paradigm Shift That is the Sharing Economy

There are several issues with economic measurements that exist today. It's a known loophole, for instance, that the flurry of rebuilding activity following a natural disaster positively affects GDP numbers. The situation on the ground is obviously different than what is being expressed in the numbers.

Emily Badger writes about the implications of the new sharing economy at the Atlantic Cities. :Looking at these through the lens of economic measurement highlights emerging errors that may make measures as they exist today more and more useless. Consider her assessment of what sorts of goods lend themselves to the "shared economy of stuff":

The shared economy of stuff works best with assets that are expensive to own and infrequently used, like camera and music accessories, or high-end home tools. SnapGoods sells itself with the slogan “own less, do more,” a nod to the idea that our culture increasingly values the accumulation of experiences over assets.

Economic measurement is built around discrete transactions. GDP is a stand in for personal utility because it's assumed that if I buy something, I (or perhaps my household if analyzing from that unit) receives the value. If I buy a lawn mower, my household receives all of the benefit from that lawn mower.

The utility of having a mowed lawn is approximated by the cost of the lawn mower. In a traditional ownership economy, this makes sense. As sharing becomes a part of the mainstream economy, it will become clearer that the core concept behind the new sharing economy is in complete opposition to this assumption. A lawn mower doesn't intrinsically provide utility. If my lawn can be cut by sharing a lawn mower with neighbors, or even a service, I get the exact same amount of utility that I would have gotten if that mower were sitting in my garage. As Emily further articulates in the article:

All of these models – alongside bikesharing, coworking spaces, shared nannies – are really at the end of the day about efficiency, even if the shared economy simultaneously speaks to our more altruistic motivations to do right by each other and the environment. Ownership, by definition, implies idleness. Whatever you own that you’re not using right this second may be going to waste. Or worse, you’re wasting scarce money on it.

I'd take Emily's insight further to say that introducing formalized sharing into an economy completely decouples ownership from utility. To say that another way, assume that an economy is measured purely by the amount of lawn mowers sold. As people begin to share more, less lawn mowers will be bought. According to economic statistics, the economy is tanking, but in reality people are receiving the exact same utility as they were previously.

Discussions about the merits of economic measures have been around forever; Bhutan makes headlines when it bases its well being on Gross National Happiness instead of Gross National Product. This particular societal evolution however could lead to one of the most egregious errors in economic data ever seen, and perhaps could lead to a complete rethinking of capitalism as a whole.

To be clear, just because we're sharing doesn't mean we're becoming communist, but the transition from an economy based on ownership to one based on experience represents a paradigm shift that has no comparison. Even the Industrial Revolution, which changed our economy in countless ways, left this basic assumption unchanged.

One would probably have to go all the way back to the transition from a hunter gatherer society to an agricultural one to find a comparison. The trade off of technological advancement was a loss of the traditional ad-hoc social organization that existed in tribal societies. In order to act in the larger units of settlements, we needed formal organization, strict division of labor, and in most cases, a concept of private ownership.

With the advent of social networking, technology has finally caught up with us. We can see the beginnings of a more natural form of interaction within larger units. Within dense cities, social networking allows us to interact with each other in a "tribal" way. Humans naturally want to interact this way, and it's exciting to see technology finally approaching a point that brings us back to our roots.

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