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E-victions Accompany E-boom
Subject Comparative statics
Topic Equilibrium
Key Words Growth, high-tech industry, workers, incomes, property, developers, rents, small businesses, moratoria
News Story

The rapid growth of the high-tech industry requires new facilities for emerging and expanding companies. It is also providing workers with substantial incomes that are being used in part to purchase homes in fashionable neighborhoods. The problem is that in the process many existing businesses and residents are being displaced. Property owners are selling their buildings to commercial developers, rents are rising, and buildings are being gentrified, forcing out lower- and middle-income families and small businesses and non-profit groups.

The picture is the same across the country, from San Francisco and Seattle to Austin, Texas, and Chicago. In San Francisco, in 1999, housing evictions were double what they were in 1996; over the last two years, rents have risen five-fold. In Chicago, low-income housing projects are being demolished to accommodate a high-tech complex.

A political backlash is spreading. For example, in the Mission District in San Francisco -- a Latino working class neighborhood -- proposals are on the ballot to limit high-tech growth. Other cities have already placed moratoria on commercial development. Some dot-coms are trying to win back public support by donating to the community, but it does not compare to the damage done to local communities.

(Updated November 1, 2000)

Questions
1.

Draw a supply and demand diagram of the market for the land on which low-income housing is built in Chicago. Show the equilibrium rental rate and the quantity of land.
a) What is the general slope of the supply curve in the short run? Why?
b) Show the implications for rental rates that could be charged if the demand curve reflected the willingness of high-tech companies to rent the land on which the low-income housing is situated.
c) Why is there pressure to demolish low-income housing? How does it restore equilibrium in the market for land?
d) Is it justifiable? Explain your reasoning carefully.

2. Draw a diagram of the market for land in San Francisco. Mark the equilibrium rental rate and quantity of land.
a) Based on your general knowledge, how does the supply curve for land in San Francisco compare to that in Chicago? Why?
b) Illustrate the effect of the high-tech boom on the rental rate and the quantity of land.
c) Explain why the change in rental rates has been so great.
d) Why have so many people been evicted?
e) If the moratoria are successful, how will they protect lower- and middle-income groups? Illustrate using your diagram.
Source Jon Swartz, "The boom in dot-com riles neighbors," USA Today, October 18, 2000.

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