[CPLX]

1. This is certainly a real effect that has some effect on relative wages at the margins in some cases.

2. In 2025 if you hear someone talking about it in the context of the US economy you are most likely hearing propaganda, designed to provide a dodge for the real driver of higher costs which is mostly concentrated corporate power, consolidation, and collusion.

[nostrademons]

Evidence for claim #2? The sectors where the Baumol effect has been most painful (housing, childcare, education, with the exception of healthcare) are ones that have much higher levels of competition and distribution than areas where prices have rapidly dropped. Construction Physics, for example, did an analysis [1] that showed that the top multifamily housing developer has 2% marketshare; the top residential housing developer (DR Horton) has 8.4% and subs out almost all the work, and the top 4 together have only 20% of the market. Compare with tech markets like browsers, search engines, or operating systems where the top firm alone often has 80% market share.

[1] https://www.construction-physics.com/p/why-are-there-so-few-...

[drewmate]

I'm not sure what the answer is for housing, but there are tons of factors that go in to the growth of cost there. For one, the people making the buying decision aren't comparing DR Horton to Lennar. Usually, they're thinking along two lines: monthly mortgage cost and location.

Still, that doesn't rule out other types of consolidation (that are not necessarily corporate in nature.) There are no new "cities" being built, and even if you want to live in a small suburban community, chances are that you want or need to live near a city for economic reasons. I bet a lot of people on this forum wouldn't even consider living outside of 15-mile radius of SFO or NYC.

For individual families, the choices are often even more constrained. Assuming a dual income household, it's unlikely both earners will be able to geographically relocate at the same time. So you end up with situations where new housing outside of economic centers is pointless to build, and new housing in economic centers is expensive or impossible to build due to regulations and existing suburban street layouts.

Bringing it back to Baumol, we can think of an invisible "land value tax" as rising much like a wage rises without an increase in productivity. Since we're not making new economically productive regions, the cost of living near one of the existing ones has to rise (and we're not doing anything to counteract those trends.)

[wat10000]

Housing is all messed up because land is a limited resource and regulation artificially limits it even further.

I live in a high demand area. A perfectly cromulent house on a particularly good lot will sell for $1.5 million as a teardown. The new house will be 6,000+ sqft and be inhabited by a family of four. Builders won’t build smaller because the land price sets a hard floor. The most profitable and economically productive thing would be to split the lot and build several smaller houses, or build a small apartment building, housing several times more people for the same cost. But this isn’t legal. Construction costs don’t make a difference. If construction costs doubled, the new houses would just get smaller. Some of these teardowns would stop being torn down. The cost of living in the area would stay about the same.

[steveBK123]

My mental model for high/low inflation goods/services are really just what % of their cost is driven by local on-shore labor which isn't / can't be automated to be more efficient. The "can't" is sometimes regulatory or cultural.

So for example childcare & education both fall into high inflation because we almost demand that it be inefficient. Customers demand to know the worker:customer ratios, and expect them to be low. It's held up by universities as a measure of quality!

Similarly with medical care, you don't see a lot of efficiency-increasing changes over time. The process of going to the doctor when you are sick, getting a prescription, and picking it up at the pharmacy is about 90% the same as it was in the 1980s. Maybe Amazon's efforts with telehealth&pharmacy can help here, tbd.

Housing is partially land use / zoning, increased regulatory burdens with time on multi-family housing, and that home construction itself is still something of an artisan craft than an industrial automated process.

[ungreased0675]

I’d speculate that the cause of higher costs is excess government spending over the past few years, creating a lot more dollars chasing fewer resources.