So, I figured that Chris’s idea was worth discussing. He spends a lot
of time thinking of utopian solutions to things at times, and I
encouraged him to make something I could post on my blog about it. I
have to say, I generally approve of his idea, but I do think it needs to
be refined and expanded before it can be implemented properly. That
being said, let’s discuss.
The housing market
The housing market has come under significant scrutiny in the past
from people like Henry George, who discussed how the housing market is
rigged like the labor market is rigged. There have been discussions
about how all costs are eventually tied to ground rent, blah blah blah.
I’m not necessarily sold on the argument, but it is an interesting ideas
to consider, and likely is a problem in high rent areas like major
cities. I think that all in all, the housing market is actually kind of a
mixed bag. I mean, I think it works properly in some areas, but it
doesn’t in others. The biggest factor is more or less supply and demand.
A lot of cities are densely packed with people, and the demand for
housing outstrips the area’s ability to supply it. Plain and simple.
What happens when demand is high and supply is low? Prices explode.
Plain and simple. The reason places like New York, San Francisco,
Washington DC, etc. all have crazy rent is because too many people want
to live there. However, if you move where I am, there are actually half
decent places to live for literally a fraction of the cost. I think the
cost for an apartment in my area is, say, $500-1000? This is still
significant, and would eat up a huge chunk of a low wage job’s income,
but it’s way better than $3000. In places like San Francisco, a literal hole in the wall will run you like $400. This is crazy. I can see why people want things to change here. In addition, you have problems with foreign nationals buying up significant property, and driving up the cost of living as well.
Chris’s solution
Chris’s solution comes off to me as something parallel to a basic
income, and heck, as you can see, he intended for it to be implemented
in parallel to a basic income. Just like in the labor market, people
can’t say no and this skews the market, housing, being an essential
thing for most/all human beings, is something that can be held over
peoples’ heads if the markets don’t work properly. Chris’s solution is
parallel to basic income: give people an alternative to the status quo
to force a party that otherwise would hold all the cards to have to
compete. Just as basic income would be a floor of income that everyone
would have, Chris is essentially providing free, relatively low quality
housing to ensure everyone has a roof over their heads. It’s a good
idea, but I think that there are kinks that need to be worked out.
Will the supply be adequate?
Chris anticipates that we would need housing for, say 2% of the
population. However, he plans on giving these houses away for free. I
see a huge problem here. Sure, not everyone is going to be willing to
give up their current housing arrangements, even if they are paying, to
live in a fairly cramped free micro home, but say the demand is actually
10%, not 2%. Suddenly, you have a huge problem on your hands. The costs
would no longer be $250 billion, but $1.25 trillion. And how would we
ration these homes out with shortages? First come first serve? On a
basis of needs? While that would be worth it since it costs the government $30,000+ for every homeless person on
the streets, how would that be any better than public housing? I think
if we have a basic income of say, $800-1000 a month, asking people to
pay a mortgage to buy one wouldn’t be unreasonable. At $40,000 a home or
so, asking people to pay $250 a month for, say, 10 years will yield
$30,000. After that, the homes can be owned. It would only be around 30%
of a monthly UBI, so that is likely a very reasonable price to buy a
home at. If they do not exist in a larger apartment complex, they might
even be moveable across the country so you can take your home with you
and buy a plot of land somewhere. If it’s more locked in an apartment
complex, that mobility would not exist though. All things considered I
would highly prefer the idea of people being able to buy these homes and
put them in various locations of their choice around the country, and
being able to haul them around the country as they move. I think it
would break a lot of the negative perceptions with public housing if we
did this, as well as giving people more flexibility and choice. As such,
my implementation idea would offer them cheaply, near cost (or even at a
slight loss to the government) to people who want to buy them, and
allow them to put them wherever they want them to go. I think if you had
a waiting list with fixed locations, you would basically be recreating
public housing as it exists. Ideally though, this idea would be
implemented parallel to UBI. I don’t think this low cost implementation
would work as good in the market we have now, although it would
definitely help people a lot regardless. Maybe without a UBI we could go
with the free option for the homeless and low cost for everyone else.
So, I kind of have problems with his idea as implemented there, but
believe these problems can be overcome. I do like the idea though. I
think it would be a good way to end homelessness and discourage price
gauging for existing homes. By providing a free or very cheap
alternative to current housing, it could correct an otherwise broken
market through increased competition.
Costs
A big factor to making this a good program is to control the costs. I
have an issue with making totally free housing to anyone who wants it
because I think costs would spiral out of control. As I said above, I
think Chris’s implementation would lead to either lead to rationing
based on need, or having to sell them at a nominal cost. I think the
latter idea, combined with a basic income, is the way to go. It would do
a good job controlling demand somewhat, and it would still solve
homelessness. It would also recover a lot of the costs. If it costs
$40,000 a home and the government sells them under the whole $250/month
plan for 10 years, they would ultimately recoup 75% of the costs for
making these things.
As for the rest, a mild increase of taxes might help. Maybe a land
value tax, as it would be most relevant to the matter at hand. I’ll
discuss that in its own section.
Alternative/parallel solution: land value tax
Henry George believed that a big solution to the housing problem would be what’s known as a land value tax.
This is considered, economically, to be the “least bad” tax because of
its lack of distortions, and tends to fall on land owners. Basically,
instead of taxing property, it taxes the value of unimproved land. If we
had a blanket tax, it would affect everyone, although proponents would
say that it wouldn’t greatly affect those who are mere home owners. I
think it really depends on implementation though. I would actually
prefer to exempt a certain amount of land per person for personal use to
allow people to own a home without paying tax, but anyone who owns
multiple properties or large tracts of land would have to pay.
Essentially, the goal of this tax in relation to the problems in this
article would be to discourage hoarding land. The more land you own,
the more you pay, and it would become unprofitable to own large amounts
of land. This would make land cheaper and more easily accessible. In the
renting market, it would also cause competition to be increased as
there would be more small time landlords renting out an extra apartment
for more money, and fewer real estate moguls who dominate large parts of
major cities renting them out to thousands of people. Essentially, it
would increase competition. Moreover, proponents of the land value tax
say it cannot be passed onto renters, so the landlords should, at least
in theory, foot the bill.
This idea would also likely be able to raise some revenue that could
go toward funding this housing program as well. I do think we need to be
careful about implementation though. I don’t think home owners would
appreciate it if we taxed them to fund free or low cost housing as it
would be seen as a redistribution of wealth from the middle to the lower
class. This is a huge political no no that is why the middle class is
so against social programs. Not to mention micro home owners might pay
taxes on land their homes are on. This amount would likely be miniscule,
like a few hundred dollars a year at best, but still, it is best not to
directly tax the people you’re trying to help if you can help it. The
real people we want to tax are the people who own tons of land and are
using their large ownership to distort the market. As such, I prefer a
progressive land value tax, or a tax with a personal allowance for
exemptions, over just a blanket tax. Proponents of the blanket tax think
this would lower its effectiveness, but we’ll just have to deal with
that I guess.
I’m not sure how much such a tax would raise and how much it would
cost individual owners. It depends on the implementation of the tax, and
as far as costs to the owners, where they live, how much they own, how
much the exemption is, if there is an exemption, etc. Total land values
in the US are about $14.488 trillion,
and taxing that at 1%, we should be able to raise $145 billion a year.
Accounting for the personal exemptions and everything else, we might
bring in far less. Still, assuming the housing program costs $25-50
billion a year, this could be yet another way for the government to
recoup costs.
Conclusion
In conclusion, I think Chris has a really good idea here, but the
exact details of the program and we need to know what other programs
will be implemented along side with it. I think this program would work
best implemented along side a universal basic income, since then we
could charge a fraction of the UBI for these homes in order to keep
demand and costs in check. Even without a basic income though, it would
still be a good standalone idea to solve homelessness and increase
competition in the housing market. It also might be worth looking into a
land value tax to discourage rent seeking activities and help pay for
the program as well.
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