A Wall Street Journal headline of yesterday looks like a lesson in non-economics: “It’s Not Whether You Can Afford a Home on Lake Como—It’s Whether You Can Find One” (August 2, 2023). An economist, a financier, a merchant, and probably many ordinary businessmen would know that, if this real estate market is free to some extent, there is a price at which virtually any property around this northern Italy lake could be purchased, not only for $1 billion but probably for $50 million if not much less. Except if one has learned “economics” in Stalin’s Soviet Union, one cannot think about the economy without factoring in prices, so central is their role.
Indeed, the story itself mentions again and again prices at which properties change hands, both around the lake and in the vicinity. A copyeditor obviously chose the headline, as customary. The author, freelance journalist Ruth Bloomfield, might save the WSJ‘s reputation—a few examples:
In 2020, [Dina Branham] began negotiating the purchase of a roughly 1,000-square-foot, two-bedroom, one-bathroom condominium in a small, gated community with water views in the waterside town of Menaggio [see the featured image of this post]. It cost $254,000. … Unable to travel to Italy, she bought the property on the strength of photographs, videos and research on Google Earth.
Homes on the water cost twice as much as other properties.
Prime property sells at around $1,024 per square foot. For a waterfront home, prices are even higher.
A 3,000-square-foot historic villa in picturesque Cernobbio with direct access to the lake would cost $11 million and up.
Meanwhile … buyers willing to trek to the north end of Lake Como … could pick up a similar lakefront house for around $5.5 million.
Some values or sentiments may have no price, but prices are the essence of markets. Even when sentiments and values are involved, prices are generally not absent: for example, we can meaningfully speak of the marriage market. As for the nuts and bolts with which we are concerned here, it is not because not all houses are on the market that no house can be purchased at any price.
Headlines, of course, are meant to get the potential reader’s attention; the headline of my own post is an example. In my view, though, this should not be a reason for copyeditors to write false or misleading ones.
READER COMMENTS
Craig
Aug 3 2023 at 11:43am
Realtors in South FL calling me twice a day seeing if I am looking to sell.
So if the government more directly said, “The price of gas must be $2/gallon” and we saw long queues outside of gas station and a newspaper wrote its not whether you can afford gas “It’s Whether You Can Find {gas}” you’d likely agree even though you tend to hate the word ‘shortage’! So I am going to suggest and simply put forth a thought that perhaps the government skewing the price of money post-pandemic with QE and then subsequent to the inflation with QT has created a substantially similar wedge that might be caused by a price floor or ceiling?
I say this because I bought a home in FL for $X in 2018 and now that same floorplan home is currently listed at 1.9183X* — and there’s only 2 for sale in the entire neighborhood whereas typically there would be 10-15 for sale at any given time. 2.25% money = major wedge between supply and demand in my mind, SIMILAR too, not EXACTLY like, a price floor or ceiling? Dare I say that or am I off. Perhaps Professors L and M might be able to shake me of this thought?
Pierre Lemieux
Aug 3 2023 at 3:08pm
Craig: I don’t hate the word “shortage,” I just think that shortages should be distinguished from high prices just as hula-hoops should be distinguished from black holes. On your second paragraph, of course, many public policies can influence supply or demand. The clearest case is an excise tax. Once the excise tax has moved supply or demand, the equilibrium price will change and there will be no shortage, precisely for that reason (if prices can move freely),
David Seltzer
Aug 3 2023 at 5:35pm
Pierre: Some examples of markets for rarified supply. In 2021 an extremely rare 1955 Jaguar D-Type sold at a Sotheby’s auction for $6 million. I believe it was one of the 24 hour of Le Mans endurance race winners. Twenty five of the most expensive apartments in NYC range from $30 million to $170 million. There is new supply coming to meet demand in various NYC boroughs.
Pierre Lemieux
Aug 3 2023 at 7:40pm
David: For a good that is not produced, or not produced anymore, or not produced during a certain period of time, economists speak of perfectly inelastic supply. The supply curve is a vertical line. Think of antiquities, vintage cars, houses already built, unimproved land, Renoir paintings, land and houses on the shore of Lake Como, etc. Prices adjust as efficiently (given a relatively free market) according to whether demand increases or decreases. The difference is that quantity supplied does not respond to prices change. Part of the demand is made of “own demand,” that is, the demand of consumers who only own some of the things in fixed supply; a decrease in own-demand is similar to a supply increase on the market.
David Seltzer
Aug 3 2023 at 9:38pm
Pierre: Thank you for the nuanced explanation. If there are no more Renoir’s being produced, Supply is perfectly inelastic. In the short run, is the supply of expensive NYC apartments almost perfectly inelastic as there are unbuilt or partially built units reserved with earnest payment from buyers?
Pierre Lemieux
Aug 4 2023 at 9:57am
David: Yes, in the very short run, all supply is inelastic. If 1,000 people want a NYC apartment in the next 24 hours, they will find the (daily) supply of apartments to be perfectly inelastic. One can’t build a new apartment in 24 hours. Price will still ration demand (if the market is free), but it will have to jump to more than where it will settle when the new supply arrives on the market.
Pierre Simard
Aug 3 2023 at 6:50pm
Dans ce contexte, en français du moins, on parle davantage de rareté économique que de pénurie.
Pierre Lemieux
Aug 3 2023 at 7:48pm
Pierre: This is true for economists like you, but the confusion between “pénurie” and “prix élevé” is as frequent, if not more frequent, in French as it is in English. For example: https://www.lemonde.fr/economie/article/2023/05/28/la-semaine-de-quatre-jours-comme-solution-a-la-penurie-de-main-d-uvre-en-europe-selon-le-commissaire-europeen-a-l-emploi_6175226_3234.html. I would say “more frequent” as the knowledge of economics (which uses a precise technical terminology) is even worse in French-speaking than in English-speaking countries.
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