5.3.06

nyt: The Boston-Minneapolis Effect

The "real estate" issue of the New York Times Magazine has some interesting stuff in it. Primarily, a bit about the "Boston-Minneapolis effect," which somehow guides housing markets.
Relying on data from the Census of Population and Housing in 1980 and 1990, Hsieh and Moretti compared home sales in 282 metropolitan areas. But their story can be told using just a pair of cities: Boston and Minneapolis, which are similar in size and demographics — but quite different in the price of their real estate.

In 1990, a typical house in Boston cost roughly twice as much as a typical house in Minneapolis. Since commission rates were fixed, an agent would earn twice as much selling a house in Boston. But the Boston market, with so much more commission money up for grabs, attracted many more agents than Minneapolis did — even though it turned out that more homes were actually being sold in Minneapolis.

The result? The typical Minneapolis agent sold twice as many homes (6.6 per year) as the typical Boston agent (3.3 per year) — which left the Boston agent, despite the higher prices in her market, no better off than her Minneapolis counterpart. What should be a competitive marketplace — which would inevitably lead to lower prices — is not, since the price of the agents' service is essentially fixed in place.


It's just kind of interesting, though Boston and Minneapolis aren't really the same size at all, now, are they?

Plus:

There's also a short interview with Brookings' "suburban policy" expert, who sounds an awful lot like Myron Orfield to me.

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