Profit, Property, and People
Just under two weeks ago, I had this to say at the end of my piece:
In the coming weeks, I will be devoting a number of posts towards tackling the issue of real productivity vs rent-seeking in the abstract, and applying this distinction to a number of areas (notably, housing, healthcare, and education). I hope to engage in fruitful discussions with readers, so please leave comments with your thoughts.
Today, we're going to talk about housing, and the (literal) rent-seeking in the industry. Buckle up.
Part 1: Abstract values vs Concrete policies
As I've explained before, we have entered into a world of institutional impotence, reinforced by spineless and pathetic politicians:
The American State can reasonably be understood as a representation of its population: chronically overweight, shoveling sludge into its mouth, requiring immense intervention to stay alive, and declining far faster than it has any right to.
If the American State was judged on its merits alone (how effective it is at governing), it would have ceased being legitimate a long time ago.
One of the core guiding principles of my political beliefs is that we need to focus on concrete goals instead of nice-sounding abstract values:
I do not care about "freedom" or "empowerment" or "equality." I care about what percentage of Americans can afford a $1000 emergency expense. I care about what percentage of Americans are eating healthy food. I care about what percentage of Americans can quit their job without fear of starvation. I care about how many hours of work a week it takes to raise a family.
I am tired of hearing politicians speak of "liberty" or "equity" when these words mean nothing in practice. All this is emotionally potent but substantively empty rhetoric. Politicians speak of "freedom" and "equality" when they have nothing concrete to offer their subjects.
Sure, I can tell you that I prize self-sufficiency and responsibility, that I prefer localism and durable economics to optimization and the sole pursuit of profit, but these values mean nothing in practice if I don't explain what concrete policies they entail.
Which leads to my most significant concrete belief:
I believe 40 hours of work at minimum wage in any town or city in this country should be sufficient to raise a family of 4 in modest, but decent conditions.
An absolutely necessary component of this will be radically dropping cost of living for the average American, especially across 3 core areas: Housing, Healthcare, and Education.
On twitter, I have repeatedly made the argument that every American should own his or her home. That the home they live in should be theirs: not the landlord's, not the bank's, their's. In that vein, I have argued to "decommodify" housing. (Many have misunderstood what this term means, which is to be expected given "commodity" has been applied in different ways by different groups of thinkers over time. I will explain my usage in this piece.)
So, why should everyone own the home they live in? To understand, we first must take a detour into some questions about property.
Part 2: What is "property" and when can I derive profit from it?
Put simply, the Commons is the resources that are available to all members of a society. When we establish some thing as our property, we have removed it from the Commons. Property is a complicated concept, so let us investigate it briefly.
Something is my property when I have a socially recognized claim on possessing it and using it. Now, that does not mean I can use it any way I want: there are frequently limitations on what I am allowed to do with my property (ex: I cannot carelessly set fire to trees on my property, nor can I play my trumpet extremely loudly at 2am). But the property is still recognized as mine. In the event someone takes my trumpet, society recognizes this as theft. In sum, I am able to exclude others from using my property, and I have the right to properly use it (more on this in a moment).
Which begs the question: what is the proper use of a house? I argue that the proper use of a house (or apartment, flat, etc.) is to be a home for the person(s) actually living there. A home is a Safe Space. It is a place of respite from the world. A place where an individual can relax and feel comfortable without worrying about what others think of them. For a man to be free, he must have some control over the most important things in his life. A man who does not even own the home he sleeps in, that he raises his kids in, is a slave.
Thomas Jefferson proposed, in a draft constitution for Virginia in 1776, that every free man have at least 50 acres of land. Adam Smith, the father of capitalism himself, was no fan of landlords. From his Wealth of Nations, Smith states that with landlords,
“[their] indolence, which is the natural effect of the ease and security of their situation, renders them too often, not only ignorant, but incapable of that application of mind which is necessary to foresee and understand the consequences of any public regulation.”
Jefferson and Andrew Jackson both believed that a man in debt was not truly a free man. Both men also were strong opponents of banks, who (along with other lenders) now own so much of this country (and the world).
The proper use of real estate is not for speculative investment, or for deriving rents. It is to provide either a home for person(s) to live in, or a base of operations for a firm to operate out of. It is absurd that otherwise successful businesses that are loved in their communities are forced to close because landlords jack up the rent. It is ridiculous that megacorporations can buy up tens of thousands of homes, driving prices up as they continuously increase rents to get desired returns. It is ludicrous that landlords can kick out tenants for having incorrect political beliefs, or simply for not liking them.
The American housing market is the world's largest Ponzi scheme. "Housing prices must go up" is more important to most than our alleged right to free speech or self-defense. It is about time this stopped.
And this is not the "imposition of tyranny" or anything of the sort. Every society has property norms, no matter what they want to call them. They have methods to determine who rightfully possesses what, and how property can be justly used:
“The relation between property and sovereignty is contested. The protection of both persons and property are two core government functions. These functions come into conflict when the exercise of a property right harms others. How do we determine when that exercise is legitimately viewed as a self-regarding act that does not affect others, and when such an exercise does harm others and thus comes within the legitimate sphere of government regulation? Property norms help answer this question by orienting us in a moral universe through background understandings that define legitimate interests. Norms orient us, first, by telling us who is an owner with regard to any particular entitlement in a resource, and second, by telling owners when they are obligated to take into account the effects of their actions on others*. In so doing, property norms define which externalities we must pay attention to and seek (if possible) to prevent.”*
(from “How property norms construct the externalities of ownership” by Joseph Singer)
One of the rights we typically attach to property is the ability to derive profit from it. If I own a farm, I may sell eggs, meat, milk, seeds, etc. But there are limits, of course. For centuries, usury was banned in various societies. Today, we have restrictions on profiting off of private information in the stock market. Limits to the right to profit from property are neither new, nor unjust.
Which brings us to a broader question: when am I allowed to derive profit from my property? What kind of profit can be justly derived from property that I own? I presented the outline of an answer to this in my last piece:
I want to lay out a basic framework for what one earns/deserves. In other words, regardless of my actual compensation, how much value have I actually created (and therefore may be justified in capturing)? I will delve into this in more depth in my next post, but the basics will go out here.
One is justified in capturing as compensation any and all value that they actually create. Any compensation in excess of created value is unjustified, and reflects a rent.
There is a big difference in me taking a forest that used to be open to all, putting up a basic fence around it, and charging people to enter. I have done nothing to engage in upkeep or improvement. The money I charge others comes from my position not my contribution. Herein lies the difference between rent and value-creation.
Landlords do provide services, but they take more than they provide. As Adam Smith put it:
As soon as the land of any country has all become private property, the landlords, like all other men, love to reap where they never sowed, and demand a rent even for its natural produce. The wood of the forest, the grass of the field, and all the natural fruits of the earth, which, when land was in common, cost the labourer only the trouble of gathering them, come, even to him, to have an additional price fixed upon them. He must then pay for the licence to gather them; and must give up to the landlord a portion of what his labour either collects or produces.
Some may argue that investors provide capital to build the real estate in the first place, but this is a function of how our capital markets are currently built, not a necessary or natural property of capital markets in general. Providing capital/investing is not actually creating value. It generates profits out of one's position, not one's contribution.
And so, we reach my argument that we must "decommodify" housing. Houses, apartments, flats, etc. are only properly used as homes for person(s) and places to operate from for firms. Speculative investment and rent-seeking distort this, and are both immoral and un-American. But this isn't a purely ethical, utopian argument. Housing supply does not appear to be the primary driver of housing price increases throughout the United States, and so reducing cost of living (which is absolutely critical in the US) will require this decommodification.
But what exactly does this decommodification entail? Let us delve into the details.
Part 3: The Details of Decommodification
When people hear terms like "decommodification" it can be easy to be struck with visions of ugly and decrepit social housing, of communal property and a lack of anything to truly call one's own. This is, of course, utterly contrary to the points I already laid out. People need housing that is private and exclusive to them. Firms need bases of operation that are stable and, again, exclusive.
When I say "decommodification" I mean removing housing from the realms of speculative investment and rent-seeking. To do so means recognizing that the person(s) and/or firm(s) occupying the real estate are using it properly, and that landlordism and mortgages are not proper. And then we craft policy based on that.
Ban foreigners and corporations (or non-natural persons) from owning houses. Corporations can only own the real estate they are operating out of, aka properly using. No real estate-as-investment.
Individuals own the home they live in. Not only does this entail a ban on rents, but it also entails limits on how many homes an individual can live in. How exactly this is decided (ex: individuals can only own 2 homes, or individuals must occupy their home for 30 weeks each year to demonstrate they're still using it, etc) is up for debate. My personal belief is that we can use scaled land value taxes to make it prohibitively expensive to own multiple homes. You can pass a further limit such as "no one can own more than 3 homes."
A 100% capital gains tax on selling your home. This is, as one might imagine, rather controversial. But renting is not the only problem with real estate. The problem is real estate becoming an investment. If you improve your house, yes you are allowed to sell it for more, as the cost basis of the property is now higher. But other than that, individuals and firms cannot see real estate as a way to make money, but rather as a place for them to live or operate from.
Housing should be part of a holistic community. In that vein, I propose offering subsidies for individuals who, for example, want to buy houses near their parents or extended family. The exact size of these subsidies can vary, but I believe that we should be helping people live in more robust communities so that they may live more fulfilling lives
In terms of ensuring new housing gets built when it is needed, I suggest that local governments themselves should be allowed to borrow money from a national development bank at zero interest and use it to finance new construction. If the town is correct that people want to live there, great. If not, taxes will have to increase to cover the cost of paying back the loan. Our capital markets should not be structured around allowing the already-wealthy to accumulate ever more wealth. It should not lock out huge swaths of the population. Instead, our capital markets should be focused on ensuring that capital flows to actually useful projects, and ensures that we invest in productivity instead of rent-seeking. We, of course, absolutely do not do that right now. And, obviously, if someone is wealthy enough they can take unused land and build their own home on it.
But what about short-term living? What if I am only moving to a city for a year and then heading back home? There would be no limits on how long you have to occupy a home. If you wanted to get up and leave, you certainly could. How would we ensure that people do not destroy the property they live in and then run away? I believe a reasonable solution to this is having appraisals/inspections at the beginning and end of occupancy, alongside a security deposit at the beginning of occupancy. Person(s) and/or firms would be liable for any damages to the property they caused.
Management companies could replace landlords. Let's say you either live in a home long-term or are in an apartment short-term and you do not want to deal with any issues with plumbing, etc. You can hire a management company to deal with that. They would provide all the services that the landlord provides, but they would not own the home and force you to rent. These companies could compete in a free market, with prices driven down by competition.
And we can focus on building strong communities, instead of building housing or cities focused on maximizing real estate values. One of the chief legs of opposition to development, that housing values might decrease, would disappear. Towns would be able to focus on actual productive investment instead of profit.
So that is my vision. An America in which every family owns their own home and every business owns their building, or office. I believe in a world where individuals have far greater liberty than they do now, and they are not beholden to landlords or banks. I believe in a world where we focus on actual productivity instead of profit. And I believe in a world with strong communities, and where individuals have privacy and freedom. I prefer to call it "Super-Americanism." Perhaps you like the sound of that.
Beyond housing, healthcare and education remain two of the most broken aspects of American society. I will be discussing those in depth at a future time.
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I am sure many of you will have thoughts on this, so feel free to leave a comment and I would be happy to discuss this.