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Pernicious Regulation & Govt mandated hearing protection7/23
Yesterday's Wall Street Journal ran an article about how much burdensome government regulation was adding to the cost of housing. Some builders were adding line items that specifically delineated the marginal cost of each hoop the builder must jump through.
The city planners, however, pointed out that the sell price for a house is determined by market demand, not cost of construction. Their contention was that the builders were going to charge what the market would bear no matter what. The cost of additional regulations had nothing to do with the price to the end user.
Whose argument seems more logical?
If the builders didn't have to include those fees in their cost of construction would they lower the price of the house by a commensurate amount? Or is this just more tea party blather?
Well, Mr. Cabmaker....What is your stance on your product? To me, this has something to do with abundance vs scarcity mentality.
There are many people that get set on hoping for say a 15% profit. So, they carefully calculate their historical costs, tack on 15% and are happy. There really is nothing wrong with this, and I really think it's valuable to have actual costing data.
BUT, what happens when the jobs aren't going as planned? there goes your 15%. Even if your costs are based on historic averages, you're coming out less than expected half the time.
I try like hell to know ALL of our actual costs. Then charge what the market will bear. Easier said than done.
The trouble is it's easier to calculate your costs than determine what the market will bear.
It reminds me of a story one of my mentors once told me. Gentlemen A asks Gentlemen B why he's looking for his dollar over here, when he lost it over there.....Gentlemen B replies "The light is better over here".
The market has little to nothing to do with the price of a newly built home. The cost of building it and then the profit required of the builder is the determining factor of the price of the home.
Doing a line item add on for the cost of the regulations is something that is definitely going to increase the cost of the home, all the line item does is state in writing what the costs are.
This article is not apt to the real cause of the "housing shortage".
No doubt government bureaucracy causes an increase in the cost of housing.
The relevant cause is demographics. See the charts.
Since the average age of a new homeowner is 31, the peak in 1990 portends an upturn in housing sales in 2020.
Anyway existing houses are cheaper than new ones because they were built with yesterday's labor.
Builders are smart and will start building when they see demand. If there is no demand they will not be selling houses so the point is moot.
Let me get this straight.
If a builder has $400K in costs and wants a 15% profit he is going to sell the house for $460K. Right?
What is he going to do if Microsoft decides to set up a campus down the street and demand for neighborhood housing surges?
Is the house still going to cost the buyer $460K?
If not, is cost really a driver for sell price?
It's never going to go for less then they can build it for. If they feel they can get 30, 40, 50% profit they'll do it. It sounded like the articles was saying you wouldn't be able to recover those costs because the area might not support it.
There is a flip side to this also, and it happens all the time in all kinds of markets.
If you only lose a little money on each job you can make it up in volume.
I tend to talk about custom built, not spec housing. In spec housing you are correct. If the market tanks you can lose your shirt.
Tim says this as though profit is a bad word.
But companies only profit when they fill customers needs. E.G. Apple, FastCap, Toyota.
And every Apple fanatic wouldn't have it any other way.
At the risk of beating a dead horse, the key is exchange. It has raised the standard of living to what we have today.
Profit is not a bad thing, it has benefitted mankind tremendously.
There is one exception which is crony capitalists who create a monopoly through lobbyists. But not the same thing.
But if you don't have this by now you never will...
I never said profit was a bad word.
I was just commenting on the knee jerk reaction that if a regulation emanates from government it must be pernicious.
Think for a second about how inefficient government is.
Now go look at your own shop.
Think for a second about what a lack of customer-centric commitment you see in government workers.
Think now about how much ambivalence you find within our own crews.
Just be grateful you don't get all the government you pay for.
And don't laud Apple Corporation for being a fountain of corporate efficiency until you try to find out if they have a battery for your laptop at the local store, or try to have an employee pick one up after it has been paid for.
The difference is that I can vote with my feet.
And did so regarding Apple back in the 90s.
That is hard to do with the building department or or or...
The problem is that the authors of the pernicious... never have to deal with the consequences of their rules. They pay NO penalty for being wrong.
In a way both are right. The builder has to understand the housing market and has to bear the market risk until the house is sold.
Bye the bye, I don't see why all regulation has to be characterized as "costly and pernicious" I would like to see far more stringent and costly regulation around energy usage. Yes it would increase first cost, but would lower life-cycle cost. This would be a great benefit to society.
"I would like to see far more stringent and costly regulation around energy usage. Yes it would increase first cost, but would lower life-cycle cost. This would be a great benefit to society."
The last person who should decide this is the person who pays no price for being wrong. And has every incentive to build a personal empire.
There is a thing called price discovery, it is the ONLY true measure of the value of a product.
Price discovery is what separates the USSR from the USA.
There is also something called "externalizing the social costs of production". Your magical "invisible hand" can only determine the correct amount of energy use abatement if the builder has to pay all the external costs. So long as everybody else has to suffer the consequences of increased air pollution and ocean acidification they too get to have a horse in this race.
The rest of us do not have the option to "vote with our feet" with respect to how much of these external costs we choose to subsidize.
Which is why we have (and need) pernicious regulations.
The trouble you attribute to "exploitation" is called the tragedy of the commons. In feudal days this area was exploited by the king and the lords.
When nobody is responsible for the sectors they get exploited.
Before you say they need pernicious regulation you have to consider that private property is the very thing that separates the USSR from the USA.
It is the very thing that motivates improvement to the standard of living.
The best solution is privatization because the owner will take responsibility for the sector.
You will say how can you do this with the air and the oceans, that could be worked out. Also there could be fines for anyone who exploits the sector. For example when the EPA pumps a million gallons of toxins into a Colorado river they should have to pay restitution. (even though it is the taxpayer who is paying the restitution).
Regulations spawn agencies with paychecks depending on them. For example the Department of Energy's sole purpose was to get rid of US dependence on foreign oil. The DOE's budget is around 30 billion per year, and did not alleviate US dependence on foreign oil one iota. What did make the US one of the top producers of oil was private enterprise.
No regulation does little to solve problems and creates new ones.
EG terrorism and homeland security, the war on drugs, carbon tax added to the already highest priced gasoline in the US, the federal department of education (an oxymoron), the aqmd driving business out of Calif, Sarbanes Oxley costing the US economy an estimated 1 trillion dollars per year to enforce without finding one single instance of a financial irregularity in 10 + years, etc etc etc.
Having moved in the last 5 years from doing wood work in multimillion dollar spec houses to being an investor in same I can tell you that the general market determines the selling price of the end product.
Government regulation adds to the cost, and eventually affects the profit margin. When it affects the profit enough, builders will stop building until a shortage forces prices up and into profitability again.
The real long term problem with energy efficiency is that rather than securing new energy sources, using less energy eventuall becomes a supply problem. Some day we will again face a war situation where manufacturing will be key as in WW2. Lacking power generation capacity due to energy conservation rather than expanding sources could be a major problem.
Not an issue.
Pay attention to where the greatest oil reserves are located and how much natural gas production has increased in places like Ohio.
Al Gore lied and people on here still believe his lies. Educate yourself.
One other remark regarding this.
The overarching argument generally goes that you have to protect the public. So what is good for the public is what is best. Therefore the individual victim is lost in the crowd.
When the railroads came into existence there were problems with pollution. A lady sued the railroads because her laundry got dirty from the soot from the engines. A farmer sued the railroad because sparks flying off the engine would catch his haystacks on fire. The railroads had to pay restitution and elected to use a less polluting type of coal.
The point is that the "public good" mandated by a centralized authority is not effective. Where as a localized court system is able to do justice and be effective.
Your arguments provide a target rich environment.
Local government was best when a horse could cover maybe 30 miles in a day. In fact, if you look at major metropolitan centers they tend to be dispersed roughly 30 miles apart along a given corridor.
You want to match your decision making to the geographical area that is influenced by those decisions. This is why, for example, banks need to be regulated at a global level rather than at a corporate level.
Do you really want a school board that does not believe in science to be in charge of explaining how the world works to children that one day will have to leave the hamlet?
Target rich if you want to volley buzzwords back and forth, yes. But if you consider what I'm saying this is far from superficial.
Local government is best because it applies justice to the actual situation as I described before.
This gets back to property rights, as with the ladies laundry or the farmers haystacks. It gets to the difference between common law and statutory law. Common law is derived from actual application of the law. Statutory law comes from the a centralized authority. IMO the latter is indifferent to property rights. And more importantly indifferent to individuals.
In the case of banks that is a bit of an anomaly because they are best centralized because that way they aren't dependent on one geographic area, e.g. a bank in the midwest (before deregulation) would be dependent on farming because that was the extent of their jurisdiction. The only caveat is you CANNOT bail them out, they are NOT to big to fail.
But this is not the case with almost all other businesses.
The beauty of this method is that it empowers the individual. As the individual can operate at the local level, an individual can easily go to small claims court or deal with the city council or go to the school board or zoning commision.
At the national level he cannot do any of these things. e.g. if it is a problem with common core he cannot go to the US Department of Education and have his grievances heard. This is a centralized mandate that does not hear anything or anyone.
Where as if these things are addressed on a local level that is not the case.
If the problem is reconcilable at the local level the individual can leave the state. Which is one of the strong suits of the US, and the weak link in the EU.
reconcilable = irreconcilable
All you guys that say "vote with your feet" crack me up. You actually think all it takes to solve a family problem is to just tighten your boot laces. That's bullshit. There are structural reasons people don't have the ability to just up and leave like good little entrepreneurs seeking out highest and best yield for their capital.
People have families and families and ties to community. What do you do when the factory shuts down but mom is in the local nursing home? What do you do when your kid needs a lot of structure to stay out of gangs or off drugs. Do you just bundle them up, tie the mattress on top of the station wagon and follow the fruit harvest?
The city I live in has extremely expensive housing and the neighborhood community councils do absolutely everything they can to make sure single family neighborhoods stay like it was in 1960. Eventually this problem needs to be solved at a higher level than just the self-interest of individual homeowners. The collateral damage is simply too high otherwise.
Oh I never thought of that.
Except what about the people/families who come from every single country in the world to live here? Are they not voting with their feet?
As to the price of housing that is IMO because of a lot of business centered in Seattle, the explosive growth at Boeing, Microsoft, Starbucks.
Additionally it has to do with the Fed increasing their balance sheet though QE. (see the chart)
The prior is a function of locality the latter is a symptom of a centralized government.
OTOH people would not have as much money to buy cabinets if not for this phenomenon.
What we have to start thinking about is not how we want life to be but how it actually is.
Even your patron saint Ayn Rand latched onto the government teat when it was her time to collect medicare.
Very little of my thinking comes from Ayn Rand.
I do agree that it is best to view things as they are not how you think they should be.
Not the least of which is the liberty to pursue your goals.
The biggest impingement on liberty is financial through taxation and inflation.
Then there is the financial impact of regulations which also impacts your liberty.
IOW there is nothing hypothetical about this.
If one gets past the preceding.....stuff, the short answer is yes, more blather. The slightly longer answer is there are building codes for a reason. They are there because over time we learn about what works and what doesn't. And so we mandate good practices so that builders are obligated to build a quality home that won't fall down. Litigation doesn't apply here as, well, good luck finding the builder after the home has failed!
People will always, always, always complain when they have to change the way they do something. And if they have to spend a little more money that is amplified even further. It doesn't matter that the change could result in a better product for a small investment......just that it's a change.
Now whether or not this affects the cost of the house is probably market dependent. In my area there is most definitely a market value. So yes, the builder in this area will sell the home for a much as they possibly can, or what the "market would/will bear". However keep this in mind, the builder knows this before he builds. So he is going to build the house a certain size and way for who he/she thinks will buy it. The asking price is already determined before the plans are stamped.
The real problem is that the builders can and do make a lot of money on the more expensive homes. Therefore most of the money that's being invested is going towards "luxury homes". Leaving many cities short of affordable housing. It's not that they can't make money on affordable housing, it's that they, (and often even more importantly the investors), can't make as much money.
I don't have a problem with building codes that is the least burdensome of regulations.
What is pernicious are: land use regulations, rent control, the CRA, the AQMD, architectural committees, Dodd Frank, and Sarbanes Oxley, bailouts, OSHA with their $10,000 to $50,000 fines, Sales Tax with arbitrary changes, Tort law abuses, etc etc etc.
I contend that because people don't always always always complain is the reason that we have these kinds of problems. Complacency complacency complacency IS the problem.
Sarbanes Oxley alone is estimated to cost the US economy over a trillion dollars a year.
The QEs were 4 trillion dollars which will eventually be inflated away but that inflation costs you. It is the gift that keeps on giving.
Hardly blather as it is in everyone's face every day. Sort of like a frog in boiling water.
The price is a function of demand which is mostly governed by demographics.
None of this is opinion, just stating the facts.
You are a lifelong democrat and supporter of big government, right Pat? I have never heard you complain about Obamacare or the tax rate before.