1. This post is in response to this question from u/JohnDoe51, but it is not an RI of the honest question. It is more of an RI of my initial shitty reaction/response, as evidenced in the title. I have been hanging out on r/neoliberal too much.

2. I would like to propose we allow effort posts attempting to explain some aspect of economics to make it over the RI barrier.

3. I spent too much time on my shitty paint graphs to post this as a comment on a fiat that has already been superseded.

Yes a standard model exists that predicts that upzoning can increase prices under certain conditions.

We generally model agglomeration economies of cities as increasing at a decreasing rate and agglomeration dis-economies of cities as increasing at increasing rate. So that the Net Benefit of living in a city increases at lower population reaches a maximum then starts decreasing as the city continues to grow. You will also note that there is a "reserve benefit" given that there is a positive value of living somewhere else that is not our city of interest. The one I drew represents a rural reserve but you can also shift the line up to represent the value of living in an alternative city. This is why the city will continue to grow past the maximum net benefit, as long as there is a reserve population to support it.

So, it appears to become possible for city to limit its population through building restrictions and thus hold its net benefits under the restrictions from falling to the reserve level. The difficulty becomes though, that if people could increase their well being by moving to the city, yet are not allowed to build new housing, they will instead trade off for that increase in welfare by bidding up the cost of housing in that city until such time as the welfare between location reaches equilibrium so that the restriction on supply is essentially a transfer of wealth from renters and immigrants to landowners.

So, if it is just a welfare transfer to the homeowners/voters of San Francisco why should they care? Well, because Houston and rural areas exist, and have a similar dynamic at play. Which ever way you want to consider it, as San Francisco allows more housing, those with the worst prospects in Houston (hippy dippy techno dorks) and the rural areas (worst land or farthest from any other prospects) and the best prospects in San Francisco will be the first to immigrate. As people immigrate away from Houston or the western desert to better prospects the average rural and Houston welfare will increase raising the reserve base for San Francisco and the total net benefit. To model it lets just assume there is only Houston and San Francisco and that they would naturally have the same agglomeration benefits (it is hard to beat California weather or natural beauty but for the purposes of this post please play along) and agglomeration costs. For simplification San Francisco somehow manages picks the Supply restriction that will cause Houston to have the same Net Benefit (on the downward side of the curve) without the need for price differentials. If San Francisco removes its supply restrictions through time, San Francisco will increase in population moving up the upward sloping part of the curve, while Houston will shrink backwards up the downward sloping part of the curve until they meet somewhere in the middle, increasing the total welfare of the total population.