Posted to the CNU Next Gen list:
Housing is a social right, and it (along with health care) is recognized as such in much of the industrial world. Even otherwise laissez-faire Hong Kong (where even central banking has been privatized) has truly vast social housing projects — a recently attempted spinoff of just their retail shops would have created Asia’s largest REIT–and they seems to work just fine. Sure, that sounds socialist (and much of what follows will undoubtedly get blasted as “meddling social engineering” by others here), but hopefully most of us can agree that adequate, affordable housing helps people access economic opportunities.
For instance, shelter is one of Maslow’s physiological human needs and is widely defined as a basic social right by many countries (and indeed, by some US cities). Substandard housing remains a public health hazard; asthma (one root cause of which is vermin) and lead poisoning are still epidemic in inner cities; overcrowding, still common in many urban immigrant neighborhoods, aids the spread of communicable disease. Employees and children in stable housing situations do remarkably better in school and at work. Well-located affordable housing helps workers and children access economic opportunity in the form of jobs or good schools, and, by keeping housing costs from swallowing half of a family’s income, allows families to keep more of their income. (Such “extreme rent burden” is much more common than one might think.) Socioeconomic diversity and low rates of transience within neighborhoods help maintain social cohesion and a sense of place, which are particularly important in a democracy.
However, the domination of American politics by homeowners, and the corresponding domination of American wealth by housing, creates a structural bias in favor of endlessly rising housing prices. Since most voters are homeowners, most voters will do anything in their power to increase their houses’ property values, and with it, their personal wealth. And they’ve succeeded: although incomes in the US have increased substantially in recent decades, much of that increase has been eaten up as costs for housing and transportation rise faster than incomes. (That is, house prices as either a multiple or percentage of income have increased.) To a certain extent, we now receive much more (and higher quality) housing and transportation than our forebears, but the real costs of basic services (i.e., one commute or one adequate apartment) have increased substantially.
Tony Downs explains this structural bias in favor of housing prices like so:
[E]normous economic and political forces are arrayed against increasing the supply of new units enough to reduce housing prices generally. These include all the financial institutions that have lent trillions of dollars in mortgages… the homebuilding industry, and the 67 percent of all U.S. households who are homeowners. These powers all have vested interests in keeping home prices rising � which means making them less affordable to potential buyers and existing renters, especially the poor. In fact, almost all local suburban governments… are politically dominated by homeowning voters whose biggest investments are in their homes. They want housing prices to rise, or at least to remain stable � certainly not to fall… Thus, the probability that any growing region can build enough new housing to meet all its shelter needs… is close to zero because the vast majority of citizens and governments do not want housing in general more affordable.
One result is that, from an econometric standpoint, Americans in high-cost
metros are spending more than the optimal share of income on housing. That
is to say, if all Washingtonians got together and decided to cut the cost of
housing by 40%–so that 15% rather than 25% of Washingtonians’ incomes went towards housing — the 10% increment of income freed up could be put into
other, more economically productive forms of investment or consumption, as money spent on goods such as food produce a higher multiplier effect than money spent on housing.
Price speculation in housing also has significantly higher social impacts than speculation in Internet stocks, coffee futures, or tulip bulbs, because shelter is a fundamental need for all humans (and, I believe, a right). Speculation (ostensibly a private activity) often has broad external (social) costs. A glut in coffee, as is happening now, depresses wages throughout the already poor developing world. Land speculation at the edges of downtowns nationwide is largely responsible for those dead zones of parking, which ultimately hurt downtown’s economic viability and desirability.
There’s also Henry George‘s argument against land speculation; essentially, that land price speculation is a unique threat to economic growth since land is necessary for all economic activity. (Marx called it “a condition of production.”)
Jon Barsanti wrote:
I am interpreting what you are saying is that as a buyer that housing should not be viewed upon as a high return investment opportunity.
Correct. People who buy houses should think of it more as “I’m purchasing shelter,” not as “I’m making a big, speculative investment and, oh, by the way, getting shelter, too.” Expecting consistently high annual price appreciation in _anything_ is problematic, and expecting so of housing is especially problematic.
First off, such an expectation is, in many cases, liable to result in personal disappointment; any investment bought with the expectation of high, sustained returns — returns outperforming market fundamentals, like income growth — is, by definition, subject to a speculative asset price bubble. Bubble collapses often overcorrect, depressing prices below their fair value, and so are especially harmful to social stability. Government should not encourage the growth of price bubbles.
Second, consistently escalating housing prices result in a host of social costs, as outlined above.
Along more pragmatic lines, all this talk about ever-rising property values
misses out on the stagnating metropolitan regions and even disfavored
sectors of growing metros that have missed out on the steady upward march of
housing prices — in many cases solely because of the neighborhood’s race. Public policies should not promise ever-higher housing prices, since we simply can’t deliver on such promises.
For instance, three almost physically identical, well-tended neighborhoods in Chicago’s bungalow belt (say, Auburn-Gresham, Brighton Park, and Mayfair) all began with substantially similar house prices in the 1920s, but today the only one to maintain a White majority has prices twice as high as the other two. My own apartment (in a gentrifying core neighborhood) has appreciated more in a year than my parents’ house (in an inner suburb of a boomtown) has in a decade.
In sum: safe, decent, affordable housing is a social right, which society should be obligated to make possible to all its members. People who have affordable housing are more able to participate fully in both society and economy. However, the current US housing regime encourages unsustainable price increases for housing (through market speculation, which imposes additional social costs), which makes providing affordable housing ever more difficult. Further, we cannot guarantee such unsustainable price increases without further distending the market, so we should stop promising them.
and a follow-up with a libertarian, after the jump
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