is housing a positional good?
I left off yesterday with Robert Frank’s hypothetical question of which would you prefer, World A, where you live in a 4,000 square foot house and everyone
else lives in a 6,000 square foot house OR World B, where you live in a
3,000 square foot house and everyone else lives in a 2,000 square foot
house.
He argues that most people would prefer B. I’m not sure whether that’s true, and to the extent it is true, how much it’s driven by the correlation between housing prices and school quality. I think I’d choose B, but my reasoning is that in world B, there would probably be nicer parks and other public spaces.
The NY Times this week had an interesting article on people who were rejoicing in Bear Stearns’ downfall, and more generally in the possibility of a setback to the Wall Street types who have driven up the cost of living in New York.
March 27th, 2008 at 11:05 am
I would also prefer B. Our house is 1,200 feet on the top and 1,200 feet on the bottom. This provides us with a very large front and back yard. I would not trade those for a giant house.
4 houses down are the 5-6,000 sq. feet houses and they are sittting on lots the same size as our lot. No yard at all.
March 27th, 2008 at 12:05 pm
We currently live in a 1900 sq ft house — “we” being two adults, a kindergartener and a 3yo. I always thought it was pretty nice but it drives my husband crazy — not because all our friends have bigger houses, but because when he was growing up he had a big house with a big yard, and he remembers how much he liked it & wants our kids to have that, too. (Also our neighbors are on top of us.) So we bought a bigger house — 2800 sq ft on 1/3 acre.
That is: the comparison is not just against your friends & neighbors but also against what you grew up with.
I wouldn’t choose either A or B unless along with it I got a house cleaner. 6000 sq ft! I’d spend my whole life cleaning such a house!
March 27th, 2008 at 12:40 pm
Similar thought here from another outlier’s position — I live alone, and all the theoretical house options are too big for me!
But knowing that the point of the question is “Which is more important to you, absolute resources or resources in comparison to what other people have?” for me, it’s absolute resources, and I don’t need as much as the example is offering.
March 27th, 2008 at 1:09 pm
“for me, it’s absolute resources, and I don’t need as much as the example is offering.’
I’m totally convinced that this is true for me as well, and I still think that economists misinterpret the data when they say that many people chose option B (assuming that’s true). As you say, maybe they choose B, because they think an absolute good to themselves will result from everyone having smaller houses (i.e. the space on the earth is finite, so if we packed smaller houses in the space, there would be more left over for everything else). Having a higher mean house size reduces that park space, regardless of whether you have the 6K or 4K house in the 5K mean house world.
I personally like having a big house (and am willing to trade a small yard for the big house). I personally like having a really big computer monitor. But, neither of those choices depend on what other people choose. Nevertheless, seeing someone else’s big monitor might induce me to go out and get my own, but not because I want to have a bigger monitor than them, but because seeing it exposed me to its absolute value.
I haven’t read this particular book, but discuss this issue quite a bit with others (i.e. the relative ranking stuff). I have always thought that the economists arguments that when people do care about what other people have, that it must because they’re irrationally comparing, rather than judging the absolute value of their own position is flawed because it doesn’t take into account a bigger picture of how other people’s position actually affects your own position (in more than just a comparative sense).
but, some of these arguments end up being semantic, and require close reading of people’s positions (and I haven’t read this particular book).
March 28th, 2008 at 6:54 am
I’m going to vote for, partially positional. Sometimes, for some people. My wife works for a BigLaw firm, and there are summer associates. So the associates get invited to summer parties at partners’ houses, and permanent lawyers on staff come too. The partners at whose houses these events are held live in what we call (original, no?) Partner Houses. These things are huge, often recently built, in the leafier suburbs of DC. They have built in bookshelves of finished wood, usually the same wood as was used in the kitchen cabinets. Very swell refrigerators. The firm pays to have a caterer there, and has had a cleaning firm there for several days before polishing everything. This has everything: the partners get to show off for the other partners, and the summers get to see that, if they put their shoulders to the wheel, noses to the grindstone, ear to the ground (and somehow manage to work in that position!) ten hours a day 340 days a year this will all come to them in ten years or so.
So it’s aspirational for the summers, and positional for the other lawyers. And there has also been the expectation that it’s an investment, that the owner will be able to cash out at sometime. And furthermore, a roof over their heads right now.
I will try to get a look at the Frank book – sounds like a rehash of Veblen, kind of, with more attention than Veblen paid to the effects of trying to keep up with the Joneses. Generally, housing will have a hard time being a purely positional purchase, because it has these other aspects of investment/shelter. Mink coats and Bimmers seem pure-er to me, and strings of polo ponies.
My own neighborhood has gone, in the time I’ve lived here, from being the kind of place where elevator repair men and FBI fingerprint clerks could buy and live, to being a place where recently elevated law partners and dentists buy. Some of the people who were here when I got here are still here – scraping to pay $7000 a year in property taxes – we even have a lady a block from me who flies the Stars and Bars every Memorial Day. Now we are seeing tear-downs and much larger houses going in in place of the modest dwellings which had been here for 50 years. So it seems to me that housing I live near is becoming more positional.