Housing, Wages, and Malani
Anup Malani’s latest paper argues that perhaps the best way to evaluate a law is to look at how the law affects housing prices and local wages. The intuition is that a good law will make the relevant community more attractive, which in turn will cause housing prices to rise and wages to fall. That is, a good law will increase the number of people who want to live in a given community, and that will drive housing prices up and push local wages down.
Malani recently asked for examples of legal rules for which this story sounds plausible, in essence looking for things that might influence a person when they choose where to live. When debating whether to live in Hyde Park or Highland Park, Anup asks, is it plausible to think that people inquire about local land use regulation, criminal enforcement, and the like? With respect to schools the answer is surely yes; but Anup wants to know if the same dynamic applies on the state level to tort law or on the local level to criminal enforcement or parking issues.
First, I think it is probably more plausible to think of this as an issue for sellers, not buyers. That is, when I decide the minimum price at which I am willing to sell my home, I probably factor in how happy I am in my local community. The happier I am –- good laws –- the higher my minimum price. Thus I don’t think Anup needs to find prospective buyers who search out minor differences in the laws that cover two possible housing locations; I think he only needs to imagine that people living in a given community have a sense of the things that community does well.
Second, I worry that Anup lists too few factors when he just talks about housing and wages. If we were to pass a good law here in Hyde Park, for instance, my guess is that not only would housing prices go up and wages go down, but local grocery and dry cleaning prices would similarly rise. After all, the people who live in Hyde Park don’t have convenient alternatives for cleanliness and foodstuffs, and thus these items are just like Anup’s housing and wages: they are part of a package that comes with living in Hyde Park, and it is that package that new residents must purchase as a unified whole. Raise the value of local law, and other things in the package will compensate, until each plausible substitute ends up worth about the same to the marginal prospective buyer.
In any event, it is an interesting paper, and one of the many reasons why it has been so much fun to have Anup back walking the hallways this year.