Comment by llamaimperative
6 hours ago
Specifically it's wrong because cost of living goes up as productivity rises.
This is counterintuitive because the cost of producing anything goes down, so you'd assume cost of living goes down. Unfortunately all production (and consumption) requires land, and as productivity rises, so does the cost of land. This isn't because the inputs into land get more expensive. It's for no other reason than that landowners are able to charge more because the land is able to produce more.
To point out the obvious: a landowner in a low productivity region does just the same as one in a high productivity region, which is to say nothing at all.
The land would be there available for use even if no one at all owned it.
This cost gets baked into every single input into every single good and service. The reason a meal is so expensive in New York City as compared to Oklahoma City isn't shipping costs. It's the rent of the restaurant and then the higher wages needed to pay everyone in the restaurant due to their elevated rent needs.
Rent rises (and falls, but more slowly) to exactly the level required to keep some portion of people in poverty and near-poverty, no matter how productive the local area is.
> Rent rises (and falls, but more slowly) to exactly the level required to keep some portion of people in poverty and near-poverty, no matter how productive the local area is.
That's an interesting claim. While it does seems there are some kind of structural forces that all but guarantee a certain percentage of people will live in poverty, I'm not certain that changing rent prices is necessarily a significant factor. I tried to find evidence that changes in rent prices "keep[s] some portion of people in poverty and near-poverty."
Can you point to any references that suggest this is the case?
It's self-evidently the case: go to any city in the world and you will find people in poverty regardless of the city's productivity and, as nradov points out, countless more who fled as the baseline cost of living overtook their own productivity potential.
An extreme example is Palo Alto where local productivity is so high that a family income of ~$200k/yr qualifies for public housing assistance. These are people who are outputting massive amounts of productivity but in dire need of public assistance.
Why? Rent.
There is an equilibrium between rent prices, people's willingness to live in a region, and the productivity of that region.
There is an equilibrium. When rents rise, workers at the margins demand higher wages or move away. This particularly applies to low-wage unskilled workers employed in service jobs like restaurants. There is friction in moving to a cheaper location and finding a new job so unfortunately some of those people will always be living in poverty.
Land values increase, though it is still possible to make a specific plot of land available to more people by building tall buildings on them and installing elevators. The total rent of a small plot can then potentially be divided amongst hundreds or thousands of people.
Correct, which increases the land value even further.
Trivially: If you imagine a plot of land next to One World Trade Center in Lower Manhattan that for some soil/geological region can't sustain a building taller than 2 stories, that lot will be worth far, far less than the lot upon which One World Trade Center was built.
Another example: If you imagine that elevators were outlawed for some reason, suddenly the value of all high-density developable land would fall.