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An epic example of wealth destruction

Summary:
The San Francisco Bay area is one of the most productive regions in the world, particularly the Silicon Valley area near San Jose. Unfortunately, many workers are priced out of moving there due to extremely high real estate prices. But what if we could build a brand new city from scratch, for a million people. The city would be near San Jose and would be much less dense than San Francisco. A developer could create sensible transit, bike paths, parks, etc. Sort of like Irvine, California, but much larger.  The rolling countryside would allow for quite attractive residential neighborhoods: You might say that it would be impossible to put together a piece of land near San Jose that is large enough to house more people than San Francisco, and at a much lower density.

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The San Francisco Bay area is one of the most productive regions in the world, particularly the Silicon Valley area near San Jose. Unfortunately, many workers are priced out of moving there due to extremely high real estate prices. But what if we could build a brand new city from scratch, for a million people. The city would be near San Jose and would be much less dense than San Francisco. A developer could create sensible transit, bike paths, parks, etc. Sort of like Irvine, California, but much larger.  The rolling countryside would allow for quite attractive residential neighborhoods:

An epic example of wealth destructionYou might say that it would be impossible to put together a piece of land near San Jose that is large enough to house more people than San Francisco, and at a much lower density.  Where would one find the land?

Actually, this sort of parcel is currently for sale.  And it is almost 70% larger than San Francisco, which is a city of 880,000 people:

An epic example of wealth destructionThat’s right, the N3 Cattle Company is currently for sale, and it is much larger than San Francisco.

But what developer could possibly afford such a vast piece of land in one of the most desirable spots on Earth?

Actually, the asking price is surprisingly low.  Here’s the WSJ:

A working ranch larger than the city of San Francisco is asking $72 million. The property, just 40 miles from Oakland, is believed to be the largest piece of land for sale in the state of California, according to the listing agent.

At 50,500 acres, the property accommodates up to 1,500 cow and calf pairs. The right buyer is someone who “wants to relive the Old West,” said listing agent Todd Renfrew of California Outdoor Properties.

The N3 Cattle Company ranch has been in the same family for about 85 years and spans four counties, including Santa Clara County, Alameda County, San Joaquin County and Stanislaus County.

To put that number in perspective, it is 7% of the cost of a single new skyscraper in San Francisco, and less than 2% of the cost of the new $5 billion Apple headquarters in Silicon Valley.  Indeed these 79 square miles are selling for less than half the cost of the land under the new Apple headquarters.  In other words, this parcel capable of producing the most spectacular new city in the world, in an area with a vast need for new housing, is selling for a pittance.

I don’t know all of the reasons for the low price, but I suspect it reflects the fact that California will not allow the new owners to build the city I just described.  If I am correct, then the regulation that prevents this from occurring (a regulation that likely did not exist in the 1970s when the Irvine Ranch was developed) has the effect of destroying hundreds of billions of dollars in potential wealth.

Does this regulation help the environment?  Probably not, as California is quite energy efficient, indeed much more so than the US as a whole.  While I can’t be certain given all of the indirect effects, it seems likely that people moving into this new city from elsewhere in America would be reducing their carbon footprint.

Of all the “low hanging fruit” actions we could take to “make America great again”, the lowest fruit of all is to reform our zoning laws.

Undoubtedly there’s a bit of hyperbole in this post; perhaps some of the land is too mountainous to develop. But the losses from regulation of land use are enormous, under any reasonable assumptions.

PS.  Rather than having a buyer who “wants to relive the Old West” for him and his family, I’d prefer a buyer who wants to recreate the California dream of the 1970s for a million Americans stuck in cold, boring, unproductive rustbelt cities.

PPS:  Thank God that the environmentalists didn’t have the upper hand when it was time to develop the lovely hills of Orange County, where I live.  (Actually I live far inland from Laguna Beach, pictured below, but it’s still nice.)

An epic example of wealth destruction

Scott Sumner
Scott B. Sumner is Research Fellow at the Independent Institute, the Director of the Program on Monetary Policy at the Mercatus Center at George Mason University and an economist who teaches at Bentley University in Waltham, Massachusetts. His economics blog, The Money Illusion, popularized the idea of nominal GDP targeting, which says that the Fed should target nominal GDP—i.e., real GDP growth plus the rate of inflation—to better "induce the correct level of business investment". In May 2012, Chicago Fed President Charles L. Evans became the first sitting member of the Federal Open Market Committee (FOMC) to endorse the idea.

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