Tiebout vs. Housing Crisis

 After graduating and securing a job offer, most college students will often require living in a different city from their parents. Thus, living costs and specifically housing rent act as a major determinant in the selection process. According to Tiebout, preferences for public goods are revealed through the location each person chooses thanks to their expected full mobility. Even when people are mobile, real-world financial constraints may cause them to trade off their preferred bundle of public goods against lower housing costs. This fact diminishes the importance of your living location being informative about your public goods’ preferences which ends up distorting the optimal allocation of government funds. In this way, we can come up with the understanding that personal savings/gains outweigh the importance of the revenue - expenditure patterns in your community. 

In the case of the Bay Area, people are moving out of San Francisco in recent years because of the spikes in housing costs. Tiebout recognizes mobility costs, but modern housing costs provide an additional and particularly important financial constraint that can affect whether people can actually choose the community that best matches their public-good preferences. For this example in California, families are moving to areas with lower quality schools and greater climate risk which are quite unusual for a normal or rational person. This shows people are ready to trade their public goods’ preferences for acquiring a greater personal financial benefit on living costs. Tiebout's model could be extended with an additional assumption by explicitly considering the tradeoff between private financial benefits and local public goods. This can be another way you can consider self-interest to act as your marginal cost and public good to be your marginal benefit. You will continue consuming the right public good for you as long as your self interest would not be harmed. In other words, housing costs can cause the observed location choice to reflect a tradeoff between private financial costs and preferences for local public goods, rather than revealing public-good preferences alone.