Economist Writing Every Day

Policies can create their own entrenched consituencies, bad policies doubly so. Restrictions have long strangled the supply of housing in California, much to the detriment of the states inhabitants. This cost, of course, was spread across the entire population, while the resulting dramatic increase in housing prices proved to be a windfall for incumbent property owners. The immediate constituency of beneficiaries, however, has probably been less important than the capital committed property owners that followed, taking on larger and larger debt obligations, each generation of new homebuyers more terrified than the last that the rug might be pulled out from under them, more committed to maintaining an obiviously terrible status quo that they nonetheless found themselves bought into.

Economists refer to this as a transitional gains trap. Once the effects of the policy are internalized into the market, no one subsequent to the first generation of incumbent beneficiaries ever benefits. But, and this is most important, if the policy is *undone*, those who bought into the market after the policy was in place stand to lose. In the case of California housing, the potential losses could be significant.

Imagine you bought this house today (care of Andrew Baker’s cheeky tweet):

Now imagine you just bought this house today, only to read this headline tomorrow:

Darrell Owens gives all the necessary details. The point isn’t whether this or other policy eventswill the be the final blow to the California housing blockade. Or this legal case. Or this political agenda. The point is that the walls are closing in. Transitional gains traps depend on sufficiently concentrated benefits and diffuse costs. It may be the simple case that the costs of the California housing are so enormous that they are economic crippling for the majority of the population. The costs are too big to politically diffuse.

Transitional gains traps are impossible to costly get out of. Someone always loses. All you can really do is try not to fall in them yourselves. Even if the house actually does have good bones.