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I'm assuming by constraints you mean regulations such as zoning which dictate what can be built where and how large can it be, like height restrictions. Does this mean that only a city with no zoning has an efficiently operating market?

No, of course not. Chicago is also a fairly efficient market - the price of new construction units is near the cost of building new units.

That would mean that places like Houston are efficient markets while DC is incredibly inefficient. What if some of those very regulations (like form based codes)ensure the building of a lovely environment which spurrs the market along, while no zoning creates the opposite.

Houston is indeed a pretty efficient market.

Of course, DC does not have form based codes. Houston is likewise not free of all regulation, just Euclidian form-based zoning.

Isn't the "free market" full of developers wanting to control their developments with regulations (HOA) to ensure their investments?

Sometimes, but not always. I don't see what that has to do with constraints on supply, either.

Where's this clear line you're implying between efficiently running markets and not? I'm afraid it's not that simple.

Of course it's not that simple, and I'm not sure why you get the impression that there's a clean line. Like all things, we have a spectrum. My explanation may be simplistic about the mechanisms, but I'm only attempting to describe the broad framework.

An efficient market allows supply to increase to meet demand; an inefficient one does not. And the increased cost and reduced quantity of housing we all bear is the deadweight loss.

by Alex B. on Dec 19, 2012 9:46 pm • linkreport

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