[Script Info]
Title: 
[Events]
Format: Layer, Start, End, Style, Name, MarginL, MarginR, MarginV, Effect, Text
Dialogue: 0,0:00:03.66,0:00:07.22,Default,,0000,0000,0000,,- [Alex] Why is this house selling\Nfor more than $2.5 million?
Dialogue: 0,0:00:08.24,0:00:09.64,Default,,0000,0000,0000,,Or this apartment,
Dialogue: 0,0:00:09.64,0:00:13.44,Default,,0000,0000,0000,,renting for almost $3,000 a month?
Dialogue: 0,0:00:13.44,0:00:15.41,Default,,0000,0000,0000,,Is it greed? Conspiracy?
Dialogue: 0,0:00:16.12,0:00:17.13,Default,,0000,0000,0000,,No.
Dialogue: 0,0:00:17.37,0:00:21.60,Default,,0000,0000,0000,,Just a powerful economic concept --\Nthe elasticity of supply.
Dialogue: 0,0:00:22.54,0:00:25.50,Default,,0000,0000,0000,,Sounds complex, \Nbut it's actually quite simple.
Dialogue: 0,0:00:26.20,0:00:28.68,Default,,0000,0000,0000,,In the United States\Naround the world,
Dialogue: 0,0:00:29.06,0:00:30.62,Default,,0000,0000,0000,,many industries and jobs
Dialogue: 0,0:00:30.62,0:00:33.84,Default,,0000,0000,0000,,have been concentrating\Nin a few dynamic cities,
Dialogue: 0,0:00:34.30,0:00:37.54,Default,,0000,0000,0000,,like tech in Silicon Valley, \Nentertainment in LA,
Dialogue: 0,0:00:38.22,0:00:40.14,Default,,0000,0000,0000,,and pharmaceuticals in Boston.
Dialogue: 0,0:00:40.92,0:00:42.70,Default,,0000,0000,0000,,So more and more people --
Dialogue: 0,0:00:42.70,0:00:44.48,Default,,0000,0000,0000,,they want to live\Nin these dynamic cities,
Dialogue: 0,0:00:44.76,0:00:47.22,Default,,0000,0000,0000,,and that increases\Nthe demand for housing.
Dialogue: 0,0:00:47.72,0:00:50.82,Default,,0000,0000,0000,,And remember, what happens\Nwith an increase in demand?
Dialogue: 0,0:00:50.82,0:00:53.06,Default,,0000,0000,0000,,The demand curve\Nshifts to the right,
Dialogue: 0,0:00:53.40,0:00:57.88,Default,,0000,0000,0000,,and buyers are willing to buy more\Nat any given price.
Dialogue: 0,0:00:58.98,0:01:01.59,Default,,0000,0000,0000,,This leads to a new equilibrium,
Dialogue: 0,0:01:01.59,0:01:04.20,Default,,0000,0000,0000,,with a higher quantity\Nsold at a higher price.
Dialogue: 0,0:01:05.14,0:01:07.40,Default,,0000,0000,0000,,But which increase\Nwill be larger --
Dialogue: 0,0:01:07.40,0:01:10.76,Default,,0000,0000,0000,,the quantity change\Nor the price change?
Dialogue: 0,0:01:11.72,0:01:13.36,Default,,0000,0000,0000,,That depends upon
Dialogue: 0,0:01:13.36,0:01:17.02,Default,,0000,0000,0000,,whether the supply\Nis elastic or inelastic.
Dialogue: 0,0:01:17.74,0:01:19.72,Default,,0000,0000,0000,,If the supply is elastic,
Dialogue: 0,0:01:19.72,0:01:23.20,Default,,0000,0000,0000,,meaning the producers\Ncan easily produce more housing,
Dialogue: 0,0:01:23.20,0:01:26.18,Default,,0000,0000,0000,,then the quantity supplied\Nwill increase a lot,
Dialogue: 0,0:01:26.64,0:01:29.52,Default,,0000,0000,0000,,and the price\Nwill only increase a little.
Dialogue: 0,0:01:30.22,0:01:33.22,Default,,0000,0000,0000,,But if the supply is inelastic,
Dialogue: 0,0:01:34.34,0:01:37.94,Default,,0000,0000,0000,,that means it's not easy\Nto produce more housing,
Dialogue: 0,0:01:38.36,0:01:40.94,Default,,0000,0000,0000,,and our supply curve\Nlooks more like this.
Dialogue: 0,0:01:41.94,0:01:43.09,Default,,0000,0000,0000,,In this case,
Dialogue: 0,0:01:43.09,0:01:46.82,Default,,0000,0000,0000,,the quantity supplied\Nonly increases a little,
Dialogue: 0,0:01:46.82,0:01:49.47,Default,,0000,0000,0000,,but the price goes up a lot.
Dialogue: 0,0:01:51.14,0:01:53.51,Default,,0000,0000,0000,,That happens when housing suppliers
Dialogue: 0,0:01:53.51,0:01:56.34,Default,,0000,0000,0000,,can't easily expand\Ntheir production
Dialogue: 0,0:01:56.80,0:01:58.60,Default,,0000,0000,0000,,in response to the higher price.
Dialogue: 0,0:01:59.78,0:02:05.36,Default,,0000,0000,0000,,Now, unfortunately, many cities\Nhave inelastic housing supplies.
Dialogue: 0,0:02:06.06,0:02:10.10,Default,,0000,0000,0000,,So as people flock to these cities,\Nwe see higher and higher prices,
Dialogue: 0,0:02:10.68,0:02:13.40,Default,,0000,0000,0000,,with little increase\Nin the quantity of housing.
Dialogue: 0,0:02:14.18,0:02:15.38,Default,,0000,0000,0000,,Why?
Dialogue: 0,0:02:15.38,0:02:17.72,Default,,0000,0000,0000,,Well, first, there are\Nnatural problems.
Dialogue: 0,0:02:18.46,0:02:20.52,Default,,0000,0000,0000,,Many of the in-demand cities --
Dialogue: 0,0:02:20.52,0:02:22.58,Default,,0000,0000,0000,,they're surrounded\Nby beautiful water.
Dialogue: 0,0:02:23.40,0:02:26.34,Default,,0000,0000,0000,,Nice, but that means\Na limited supply of land.
Dialogue: 0,0:02:26.68,0:02:30.90,Default,,0000,0000,0000,,But we compound natural problems\Nwith unnatural ones.
Dialogue: 0,0:02:31.44,0:02:32.68,Default,,0000,0000,0000,,In many cities,
Dialogue: 0,0:02:32.68,0:02:35.53,Default,,0000,0000,0000,,zoning laws and other regulations
Dialogue: 0,0:02:35.53,0:02:38.74,Default,,0000,0000,0000,,prevent builders\Nfrom creating more housing.
Dialogue: 0,0:02:39.52,0:02:41.66,Default,,0000,0000,0000,,Take San Francisco, for example.
Dialogue: 0,0:02:41.66,0:02:44.94,Default,,0000,0000,0000,,It's surrounded by water, \Nso there's limited land.
Dialogue: 0,0:02:45.53,0:02:48.98,Default,,0000,0000,0000,,But if you can't build out, \Nhow about building up?
Dialogue: 0,0:02:49.44,0:02:51.70,Default,,0000,0000,0000,,There's plenty of land in the sky.
Dialogue: 0,0:02:52.86,0:02:55.47,Default,,0000,0000,0000,,San Francisco's \Nzoning laws, however,
Dialogue: 0,0:02:55.47,0:02:58.08,Default,,0000,0000,0000,,have made it impossible\Nor very expensive
Dialogue: 0,0:02:58.64,0:03:01.92,Default,,0000,0000,0000,,to build taller buildings\Nin many parts of the city.
Dialogue: 0,0:03:02.86,0:03:07.32,Default,,0000,0000,0000,,Even changing single-family homes\Nto duplexes or fourplexes
Dialogue: 0,0:03:07.32,0:03:09.73,Default,,0000,0000,0000,,has typically been prohibited.
Dialogue: 0,0:03:10.76,0:03:11.98,Default,,0000,0000,0000,,And that's not all.
Dialogue: 0,0:03:12.72,0:03:15.60,Default,,0000,0000,0000,,Suppose a builder does find\Na plot of land to use.
Dialogue: 0,0:03:16.02,0:03:18.18,Default,,0000,0000,0000,,Well, next, they need\Na building permit.
Dialogue: 0,0:03:18.58,0:03:21.36,Default,,0000,0000,0000,,And the process for filing\Nfor building permits --
Dialogue: 0,0:03:21.36,0:03:23.04,Default,,0000,0000,0000,,it could be hard to understand.
Dialogue: 0,0:03:23.48,0:03:26.70,Default,,0000,0000,0000,,City officials can leave applicants\Nhanging for years.
Dialogue: 0,0:03:27.26,0:03:28.56,Default,,0000,0000,0000,,In San Francisco,
Dialogue: 0,0:03:29.14,0:03:34.73,Default,,0000,0000,0000,,it takes an average of 627 days
Dialogue: 0,0:03:34.73,0:03:37.50,Default,,0000,0000,0000,,to receive a building permit\Nfor a new house.
Dialogue: 0,0:03:38.22,0:03:41.40,Default,,0000,0000,0000,,And that delay adds a lot\Nto the costs for builders.
Dialogue: 0,0:03:41.92,0:03:45.22,Default,,0000,0000,0000,,And if a builder does get\Na building permit, it's not over.
Dialogue: 0,0:03:46.06,0:03:49.12,Default,,0000,0000,0000,,Many people can still veto\Nthe project:
Dialogue: 0,0:03:49.78,0:03:51.16,Default,,0000,0000,0000,,environmental agencies,
Dialogue: 0,0:03:51.90,0:03:53.36,Default,,0000,0000,0000,,planning commissions,
Dialogue: 0,0:03:53.98,0:03:56.02,Default,,0000,0000,0000,,historic preservation societies,
Dialogue: 0,0:03:56.74,0:03:58.95,Default,,0000,0000,0000,,and groups of existing residents.
Dialogue: 0,0:03:59.38,0:04:03.57,Default,,0000,0000,0000,,They can slow things down\Nwith lawsuits, protests,
Dialogue: 0,0:04:03.57,0:04:05.21,Default,,0000,0000,0000,,and bureaucratic objections.
Dialogue: 0,0:04:06.34,0:04:08.30,Default,,0000,0000,0000,,So now that we better understand
Dialogue: 0,0:04:08.30,0:04:10.97,Default,,0000,0000,0000,,why the supply of housing\Nis inelastic,
Dialogue: 0,0:04:11.60,0:04:14.39,Default,,0000,0000,0000,,let's revisit our supply\Nand demand graph
Dialogue: 0,0:04:14.39,0:04:17.20,Default,,0000,0000,0000,,and illustrate what happens\Nin the housing market
Dialogue: 0,0:04:17.20,0:04:18.86,Default,,0000,0000,0000,,with an increase in demand.
Dialogue: 0,0:04:19.40,0:04:21.34,Default,,0000,0000,0000,,Suppose a city is thriving,
Dialogue: 0,0:04:21.34,0:04:24.37,Default,,0000,0000,0000,,and the demand to live\Nin that city increases.
Dialogue: 0,0:04:24.80,0:04:27.04,Default,,0000,0000,0000,,The demand curve\Nshifts to the right.
Dialogue: 0,0:04:27.70,0:04:29.21,Default,,0000,0000,0000,,To keep it simple,
Dialogue: 0,0:04:29.21,0:04:32.16,Default,,0000,0000,0000,,say that ten people\Nwant to move into the city.
Dialogue: 0,0:04:33.10,0:04:35.60,Default,,0000,0000,0000,,Builders see\Nthe increase in demand,
Dialogue: 0,0:04:36.00,0:04:37.74,Default,,0000,0000,0000,,and they try to build more,
Dialogue: 0,0:04:38.26,0:04:39.75,Default,,0000,0000,0000,,but they're stopped
Dialogue: 0,0:04:39.75,0:04:41.62,Default,,0000,0000,0000,,by water, height restrictions,
Dialogue: 0,0:04:41.62,0:04:44.03,Default,,0000,0000,0000,,zoning laws, bureaucracy, lawsuits.
Dialogue: 0,0:04:44.70,0:04:47.00,Default,,0000,0000,0000,,That's our inelastic\Nsupply of housing.
Dialogue: 0,0:04:48.32,0:04:53.08,Default,,0000,0000,0000,,So imagine, somehow a builder\Nfinds a way to construct one home,
Dialogue: 0,0:04:53.54,0:04:58.40,Default,,0000,0000,0000,,increasing the quantity supplied a\Nlittle. But 10 people want to move in.
Dialogue: 0,0:04:59.18,0:05:01.36,Default,,0000,0000,0000,,So who gets the new home?
Dialogue: 0,0:05:02.26,0:05:03.98,Default,,0000,0000,0000,,Well, the potential new residents,
Dialogue: 0,0:05:04.06,0:05:09.12,Default,,0000,0000,0000,,they compete to get the new\Nhome by bidding up the price.
Dialogue: 0,0:05:09.72,0:05:11.74,Default,,0000,0000,0000,,The price for the new home goes up.
Dialogue: 0,0:05:12.04,0:05:15.72,Default,,0000,0000,0000,,First, one person drops out, and\Nthen the price goes up Some more,
Dialogue: 0,0:05:15.88,0:05:17.62,Default,,0000,0000,0000,,and another person drops out.
Dialogue: 0,0:05:17.92,0:05:19.78,Default,,0000,0000,0000,,The price keeps going higher
Dialogue: 0,0:05:19.82,0:05:25.02,Default,,0000,0000,0000,,and higher and higher until\Njust one person is left,
Dialogue: 0,0:05:25.32,0:05:27.74,Default,,0000,0000,0000,,and the high bidder wins the new home.
Dialogue: 0,0:05:28.52,0:05:31.70,Default,,0000,0000,0000,,Notice that it's not the owners\Nof housing jacking up the price.
Dialogue: 0,0:05:32.22,0:05:37.78,Default,,0000,0000,0000,,It's the buyers who must bid\Nhigher to out-compete one another,
Dialogue: 0,0:05:38.60,0:05:40.18,Default,,0000,0000,0000,,given the limited supply.
Dialogue: 0,0:05:41.20,0:05:43.10,Default,,0000,0000,0000,,And inelastic supply of housing,
Dialogue: 0,0:05:43.14,0:05:46.56,Default,,0000,0000,0000,,it does mean higher property\Nvalues for existing residents.
Dialogue: 0,0:05:47.36,0:05:52.04,Default,,0000,0000,0000,,So existing property owners, they have\Nan incentive to block new construction.
Dialogue: 0,0:05:52.92,0:05:55.82,Default,,0000,0000,0000,,And that's one reason\Nwhy reform is difficult.
Dialogue: 0,0:05:56.38,0:05:57.32,Default,,0000,0000,0000,,And who's harmed?
Dialogue: 0,0:05:57.88,0:05:58.98,Default,,0000,0000,0000,,Well, lots of people,
Dialogue: 0,0:05:59.32,0:06:04.04,Default,,0000,0000,0000,,but most especially the potential\Nresidents who are bid out of the market.
Dialogue: 0,0:06:04.46,0:06:06.76,Default,,0000,0000,0000,,They'll have to live further away,
Dialogue: 0,0:06:07.36,0:06:13.20,Default,,0000,0000,0000,,with longer commutes, or they may not even\Nbe able to live near good jobs at all.
Dialogue: 0,0:06:14.24,0:06:18.84,Default,,0000,0000,0000,,And notice that the people who\Nare harmed, they don't get a vote.
Dialogue: 0,0:06:19.72,0:06:20.52,Default,,0000,0000,0000,,By definition,
Dialogue: 0,0:06:21.68,0:06:22.98,Default,,0000,0000,0000,,the potential residents,
Dialogue: 0,0:06:23.16,0:06:28.46,Default,,0000,0000,0000,,they don't live in the city\Nthat priced them out of a home.
Dialogue: 0,0:06:30.04,0:06:32.62,Default,,0000,0000,0000,,It's not all bad news, however. Slowly,
Dialogue: 0,0:06:33.68,0:06:35.78,Default,,0000,0000,0000,,some cities are starting to change.
Dialogue: 0,0:06:36.50,0:06:38.86,Default,,0000,0000,0000,,In 2016, Auckland, New Zealand,
Dialogue: 0,0:06:39.24,0:06:43.44,Default,,0000,0000,0000,,they liberalized their laws to\Nallow upzoning in much of the city.
Dialogue: 0,0:06:44.22,0:06:49.30,Default,,0000,0000,0000,,And the number of new houses skyrocketed\Nand housing prices moderated.
Dialogue: 0,0:06:50.28,0:06:52.70,Default,,0000,0000,0000,,The rest of New Zealand\Nis now following suit.
Dialogue: 0,0:06:53.90,0:06:59.12,Default,,0000,0000,0000,,Even San Francisco is starting to\Nallow new duplexes and fourplexes.
Dialogue: 0,0:07:00.06,0:07:03.02,Default,,0000,0000,0000,,So let's hear it for a more\Nelastic supply of housing.
Dialogue: 0,0:07:03.70,0:07:05.74,Default,,0000,0000,0000,,Okay. There you have it.
Dialogue: 0,0:07:06.06,0:07:09.94,Default,,0000,0000,0000,,If you want to understand why\Nhousing prices are rising,
Dialogue: 0,0:07:10.58,0:07:12.90,Default,,0000,0000,0000,,you must first understand the elasticity
Dialogue: 0,0:07:13.30,0:07:19.56,Default,,0000,0000,0000,,of supply and what makes housing supply\Nin many parts of the world inelastic.
Dialogue: 0,0:07:21.38,0:07:23.90,Default,,0000,0000,0000,,Now, you can test your\Nunderstanding of elasticity
Dialogue: 0,0:07:24.40,0:07:26.34,Default,,0000,0000,0000,,by checking out our practice questions.
Dialogue: 0,0:07:26.98,0:07:30.74,Default,,0000,0000,0000,,We also have test banks and lesson\Nplans for economics teachers.
Dialogue: 0,0:07:31.44,0:07:35.78,Default,,0000,0000,0000,,Or, if you're ready for more\Nmicroeconomics, click for the next video.