> This is the foundation your argument rests upon, but it's flawed: it assumes that urban property prices will always be high relative to the price of suburban housing due to the cheaper cost of low-rise construction.

LOL, I am saying the exact opposite! Look, this is econ 101 stuff -- I am describing a trade-off between transportation and construction technologies. Like any trade off, price will be at the indifference level between the two. So of course the price differential between living in the city center and a farther location will be the indifference point of cost of travel + price at new location vs price at old location. You and I agree.

Now, look carefully at this equation:

cost of travel + price at new location = price at old

What happens when the cost of travel decreases, say due to some innovation in travel, or even due to a subsidy given to transportation? Does the suburb become more expensive or does the city become cheaper? Well, a bit of both, but mostly the city becomes much cheaper because there is a lot more land in the suburbs than in the cities.

Alternately, look at what happens when transportation becomes more expensive. Does the suburb become cheaper or does the city center become more expensive? The city center becomes more expensive, because again there is a lot more land in the suburb.

So what you have described in "refuting" my point is exactly the argument I have been making. That there is a trade off.

Now, in this trade off, we have a situation in which so called advocates of housing have been condemning subsidies to transportation and in fact have been calling for reductions in transportation and taxes on transportation. They feel that the roads, automobile and the suburbs are a mistake and we should all be living in tall apartments in the city, with say nature preserves outside the city and no suburbs. My argument is that this causes the city center to be much more expensive, and so landlords benefit. This also hurts economic mobility.

The second argument is that we have constrained areas like SV that are suffering from too expensive housing, and as a result we should again tax transportation more and subsidize housing more, etc. This is crazy. One nice thing about transportation, and why it should be subsidized, is that when you subsidize it you get more of it. It's a standard economic produced good. But when you subsidize land, you don't get more land, the land becomes more expensive. Look at Prop 13. It was a windfall for incumbent property owners but everyone who bought after Prop 13 came into effect had to pay for the benefit in the form of higher house prices, as the subsidy was capitalized into the current price. In the same way, the mortgage interest deduction doesn't help current owners, it helps the previous owners who bought when the law wasn't in effect, but for current buyers those benefits are already capitalized into the price. In other words, subsidies to property owners don't increase the supply of housing services consumed but subsidies to transportation do increase the supply of transportation services consumed.

So if you are going to subsidize one thing to alleviate the housing crunch, subsidize transportation. Build a faster BART. Build more freeways. Give people vouchers for fuel. That is by far the most effective way to allow more people to work in Silicon Valley. It is unfortunately not politically correct, because the innumerate "smart growth" people think that we're going to tear down all of our single family homes and replace them with three story homes, thus tripling land density, and that this is the most efficient way of increasing housing available to centers like silicon valley.