California real estate is desirable. I own property there. Zillow teaches us that it has the most valuable land in America with a Zillow average price of $644,000 in April 2021. The national Zillow price is $276,000. Is this difference caused by supply or demand?
Over the years, I have written several papers about what makes a place such as California so desirable (and thus featuring high demand).
My 2006 Green Cites book --- on the rising desirability of great places to live. The rise of Work from Home only enhances this point going forward.
Power Couples are attracted to living in its cities due to the amenities and the thick local labor markets.
The demand to live in great climate zones has risen across the decades.
Cragg, Michael I. & Kahn, Matthew E., 1999. "Climate consumption and climate pricing from 1940 to 1990," Regional Science and Urban Economics, Elsevier, vol. 29(4), pages 519-539, July.
Dora L. Costa & Matthew E. Kahn, 2003. "The Rising Price of Nonmarket Goods," American Economic Review, American Economic Association, vol. 93(2), pages 227-232, May.
At the same time that demand is rising, progressive and educated areas such as California have limited the supply of housing.
Kahn, Matthew E., 2011. "Do liberal cities limit new housing development? Evidence from California," Journal of Urban Economics, Elsevier, vol. 69(2), pages 223-228, March
Kahn, Matthew E. & Vaughn, Ryan & Zasloff, Jonathan, 2010. "The housing market effects of discrete land use regulations: Evidence from the California coastal boundary zone," Journal of Housing Economics, Elsevier, vol. 19(4), pages 269-279, December.
When demand is rising and supply is limited, prices rise and middle class people are priced out and move elsewhere such as Texas. Economists have not spent enough time discussing the consequences of these "cross-price" elasticities. Intuitively, the demand for Texas property increases as the price of California property increases.
Ed Glaeser and I explore the carbon footprint implications of this dynamic in this paper;
Glaeser, Edward L. & Kahn, Matthew E., 2010. "The greenness of cities: Carbon dioxide emissions and urban development," Journal of Urban Economics, Elsevier, vol. 67(3), pages 404-418, May.
This dynamic also has implications for the Electoral College. I claim that if California, Oregon and Washington had the same zoning rules as Texas that these 3 states would have at least 200 electoral votes. Imagine if real estate developers could purchase adjacent single family homes in California and replace them with 6 story buildings. Think of the improvements in middle class quality of life and the growth of the state.
In this sense, local housing supply determines national politics. I explored this theme in these two blog posts back in 2016. In those posts, I intentionally embrace a provocative position and argue that West Coast land use regulation greatly contributed to the election of Trump in 2016.