The Seen and the Unseen: Wegmans, Manhattan, and Slow Growth
Economists have a favorite cynical explanation for the slow-growth movement: Property owners are trying to raise real estate prices by restricting supply. I’m no mind-reader, but I doubt that’s the real motive of most opponents of further development. But in any case, the effect of slow-growth on real estate prices is a lot less obvious than you think.
Wegmans grocery store just opened in my neighborhood. It’s a great place to buy your groceries, and the food court is excellent. Now consider: What effect does Wegmans’ existence have on the value of my home? Clearly, to increase it. People want to live near good shopping. So if Fairfax County denied it permission to open, I’d be worse off, even though I’m a property owner.
Now think a little harder. Would Wegmans have opened if the housing stock in my area were not skyrocketing? Maybe, but it’s far less likely. So when the forests down the street from me turned into McMansions, it wasn’t just an increase in the supply of housing, depressing the value of my property. People moved into the housing, increasing the demand for retail, raising the quality of life in the neighborhood, and thereby raising the value of my home. The net effect? I’m not sure, but I suspect its positive. (And that isn’t even counting the larger number of potential playmates for my kids!)
Bottom line: Not only is slow-growth bad for people who want to buy; it could easily be bad for people who already own.
If my suspicion is correct, does anyone benefit from restrictions on growth? The strongest candidates, strangely, are property owners in competing areas. If Oakton shut down Wegmans, some people who would otherwise have moved here may buy in Bethesda (a similar area 40 minutes away in Maryland) instead. Demand for Oakton goes down, demand for Oakton substitutes goes up.
Edward Glaeser, Joseph Gyourko, and Raven Sachs have an interesting new paper asking Why Is Manhattan So Expensive? They blame high real estate prices on land use restrictions. Maybe they’re right, but I wonder if real estate deregulation wouldn’t drive prices even higher. Or to be more precise, I suspect that deregulating Manhattan real estate markets would lead to more affordable housing – in Hoboken, Brooklyn, and Staten Island!