Dimensional analysis and housing
There was a famous Chemical Physicist at UCSD, Kent Wilson, who made a fortune in currency trading and was largely able to self fund his cutting edge Chemical Physics group at UCSD. He once pointed out to a Chemical Physicist colleague of mine at a post-meeting dinner one night when my colleague was offering the opinion that housing in San Diego was over priced, that he was failing to take into account the dimensional analysis of housing near a coast. In a geographically non-constrained housing market, the travel distance to the economic center goes as the square root of the population. We don’t know the exact scaling of economic activity with population, but it is certainly higher than linear, but unlikely to be as high as the square of population. The point being that along a coast housing accessibility scales closer to linear than square root, but economic activity due to population growth goes at a higher power. Do you not think that a house is a depreciating asset, but the land appreciates due to geographic factors? Do you think it’s possible to evaluate housing using simple aggregate financial metrics?
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