What to do when the free market can’t provide a basic right
The history of American housing over the last decade has been a history of crisis. From the subprime mortgage crisis to the skyrocketing rents in cities across the country, it is clear that the current system isn’t working. People have offered various solutions: build more housing, regulate mortgages, or even (gasp) rent control. But at the end of the day, none of them eliminate the underlying driver of all these problems: profit motive. The subprime mortgage crisis came to be in the first place because banks wanted to package subprime mortgages with more desirable mortgages and pretend they were all met a AAA standard. The reason: profit motive. The rent crisis in cities largely exists because speculators are able to buy up houses that they know will increase in value, pricing out actual potential tenants. The reason: profit motive.
These are just recent examples. Slumlords and block-busters have used racism for decades to screw over communities of color and fill their own pockets. Once again, this is allowed by a system that puts profit motive over an affirmative right to housing. The free market is creative, and no matter what barriers and regulations are put in its way, it will always find the best way to squeeze an extra penny out of tenants.
Therefore, the solution is not to put another set of regulations in place. It is to take housing off the market altogether. This sounds insane given how different that would be from our current system, but as this system fails us time and time again, it is time to look for another one. That being said, it is a large proposition, and it would have to be undertaken carefully and gradually. I hope to lay out some of the basic steps that would have to be taken, and answer some basic questions that one might have about a system so radically different from our own.
Removing the profit incentive
The first step in this process is perhaps the most crucial, but also the most controversial. Once the profit incentive is removed, any opposition to providing housing more equitably becomes a matter of ideological belief rather than self-preservation. But that initial hump is difficult to get over. Home ownership has served as one of the primary forms of wealth-building in America for years, and that would have to be something that could be replaced, or at least supplanted with wider economic security. There is also the matter of real estate’s place in global financial markets, but their existence there is part of the problem to be solved in the first place.
As it would turn out, the trick to removing the profit incentive from housing is not particularly radical. The government doesn’t have to take over any houses, it don’t have to abolish private property, and it does not have to ruin anyone’s livelihood. It just needs to implement one tax, known as a land value tax.
The idea behind a land value tax is simple. Every house or building gets its value from two things: the actual productive business or physical house, and the land that it is built on. Apartments in New York City and San Francisco are not so expensive because they are just that nice, they are expensive because the land underneath is worth so much. What a land value tax does is separate the value of the building from the value of the land, and tax just the value of the land. To completely remove the profit incentive, you would tax 100% of the rental value (the amount of money you would make if you were to rent out the plot to someone) either once a month or once a year. At that point, there would be no point for a landlord or real estate holding company to buy a housing plot unless they either wanted to build a business there or simply live there. Anything else would cost them money.
When it comes to removing profit incentive, this is an extremely effective method. However, it creates its own set of problems. The most obvious of which is that it makes expensive areas even more unaffordable to lower-income people, with the tax operating as a super property tax that can never be fully paid off. It would essentially lock working class people out of wealthy urban areas. Additionally, the lack of a profit motive could lead to a dearth of landlords and other people who currently administrate and repair properties. While that is a good thing in many ways, it can potentially lead to disrepair.
Of course, both of these are problems that already exist today, but that does not mean that they don’t need to be addressed. And that is done by the following steps towards de-commodification.
Democratizing the housing supply
One of the nice side effects of a land value tax is that it creates a lot of revenue, and this can be used to do a lot of things that were not possible before. Perhaps the most important thing to do with that money is to start build public housing.
Public housing has had a rough public image problem in America for two major reasons. The first reason is a lack of consistent funding. Usually, money will be given to a city or housing authority to build new public housing, but very little will be given to do upkeep, and as a result the buildings will fall into disrepair. The second reason is the focus on only providing public housing to the poor. Public housing in the 20th century usually had some sort of low-income requirement, and sometimes added even more stringent requirements if the wait list was too long. As a result, public housing projects brought with them the stigma of poverty, driving a general lack of interest among the wider population.
But it doesn’t have to be this way. In many European countries, public housing is better-funded and has less stringent income requirements. Built in convenient locations that were meant to be attractive and convenient, European public housing is actually able to attract more middle-income tenants.
In America, this sort of system could be used to allow lower-income people to live in good locations without being driven out by price. Whether it be an under-developed rural area, an abandoned suburban lot, or a dilapidated city block, the government could acquire property, build mixed-income public housing, and use the rents of the higher-income tenants to subsidize the rents of lower-income tenants, using revenue from the land value tax to fill in the gaps. The revenue could also be used to better fund existing public housing, rather than reducing the overall supply of low-income units. That would guarantee that at least some low-income people could have residences in traditionally more high-income areas, even if it’s a limited number.
While building a lot of public housing begins to solve the issue of cost, there is still the vacuum caused by the decrease in landlords and banks who theoretically maintain houses and apartments. The solution to this problem: more democracy. Across the country, there are already hundreds of resident-owned communities which manage their own neighborhoods or apartment buildings democratically, and the same system could be applied more widely. Public housing projects could implement that system by default, and in existing neighborhoods, legislation could be passed to allow a group of tenants to buy out their neighborhoods.
There would of course have to be some sort of guidelines for these mini-governments, as complete resident control in the past has led to things like racial covenants and violent reactions against new residents. This could be helped along by offering a certain percentage of the land value revenue to resident-owned communities that met a specific set of democratic, open-community guidelines. Once these were in place, things like repairs, maintenance, and services would be decided democratically by the tenants, rather than imposed by a landlord.
At this point in the process, the housing system would be significantly more democratic and equitable than it is now, but housing would not be truly de-commodified. De-commodification generally means taking an item off the market, so that one’s ability to get that item is based entirely off of their needs, rather than their ability to pay. And that requires making some changes that go beyond anything that has been fully tried yet.
Taking housing off the market
Up to this moment in history, there is yet to be a single country that has implemented a true non-market housing system for any extended period of time. Even the Soviet Union had at least a partial private housing stock. So, while I try to lay out a general plan for how the next steps would work, there are fewer analogs to existing policies.
At this point in the process, most housing would be publicly or community-owned, democratically run, and outside the world of profit. This would be a good system based on its own merits: pretty much everyone would be housed and have a say in how their community was run. However, the end goal of de-commodification is that distribution is based on need, not how much money someone has. And while the amount paid is based off of land value, and people buy and sell homes on the market, that goal is not reached.
Ideally, all of this could be done without money, but until there is a much larger societal change, that’s not going to happen. So two changes have to be made: how rent is paid and how people get their houses.
Unfortunately, while the land value tax is a wonderful thing, once the process of removing the profit incentive is over, it should start to be phased out, at least for homeowners. A replacement could take a variety of forms, from an income or wealth tax to simply using the land tax revenue from surrounding businesses. Whatever it is, it would have to be based entirely on peoples’ ability to pay, rather then tying it to the cost of any individual dwelling. It is a similar principle to single payer health care, where premiums and co-pays are replaced with income or payroll taxes. As with the land value tax revenue, this would go partially to fund larger projects and partially to fund local resident governments.
The system of distribution would be much more controversial. Markets are generally accepted by economists to distribute goods and services, since they incorporate all the aspects of supply and demand in one single price. However, they are also inherently limited to those who are wealthier, as the relative cost of a good to someone making $1 million a year is always going to be lower than it is to someone making $50 thousand a year. Therefore, an ideal system of distribution would have to incorporate actual demand, based on needed space and accommodations, as deftly as markets incorporate the warped demand that exists with unequal wealth.
I do not pretend to know the specifics of what the solution to this problem looks like, but it is certainly going to require some technology. There already exist many sites today, most notably Zillow, that have existing databases of houses. If people were able to upload their information to a similar sort of site, including things like family size, accessibility needs, and then select available houses that they would be interested in, an algorithm could do the rest, figuring out which house went to who. Houses that were more desirable would still be more exclusive, but instead of going to whoever had the most money, they would go to the person who it would be the closet fit for. Of course, not every house would be up for grabs all the time. People would be able to keep their own houses, only making them available when they planned on moving.
Beyond just assigning houses, the data collected from this process could do a variety of things. If an area had significantly more applicants than open houses, that’s a sign that more housing has to be built. If the problem is reversed, then the community would either be able to renovate the homes to make them more appealing, or demolish them and replace them with a productive business or just green space.
And that is the end goal. A housing system where things are determined democratically and fairly, not controlled by a global housing market riddled with landlords and banks. Now, there are some specifics that I didn’t get to in this part, and I try to address some of them below. If you have any further questions, just reply and I will try to add them in.
But seriously, why not just have housing on the market?
There are currently more vacant homes than there are homeless people, and people are spending larger and larger portions of their paycheck on rent. Our housing system is deeply broken, and the market system is a major reason for that. It also generally has deepened inequities in our society, and as an egalitarian kind of guy, I am generally not a fan of that. The main goal of all of this is to find a way that people can still own their homes in a functional sense, while still removing the opportunity for exploitation.
Tell me some more good things about the land value tax.
Of course! The land value tax does a lot more than just reduce profit incentives. In fact, a whole movement known as Georgism (after its creator, economist Henry George) has existed since the late 1800s based off of its merits. The idea itself was created to prevent the boom/bust cycle by reducing land speculation, and it has a variety of other side effects. It encourages development and density, which is useful in areas that suffer with urban sprawl. It is also the most economically efficient tax, since all of the initial value is transferred to tax revenue, unlike most taxes which have deadweight loss. The wikipedia page has a good overview of other benefits and links to more in-depth sources.
How would a land value tax be administered?
This is probably the most complicated part of the land value tax, as there are many ways it can be done. When it comes to determining value, most states already split property valuation between the structure and the land itself, so those existing measurements could be used. This is the system that most cities that tax land at a different rate use. However, it is expensive and time-consuming to redo these valuations regularly, and an out-of-date value could allow a landlord to still extract extra value from their tenants, as they would only have to pay a percentage of the real value of the land if it has gotten more valuable. In these cases, the market value of the land in that transaction could be used to update the existing land value.
When it comes to who enforces and collects the tax, that depends. A land value tax can be a decent way to improve a city budget, but cities can struggle to actually enforce it and keep values up to date. It could also technically be a federal tax, but that could lead to an overly complicated bureaucracy. In my opinion, the states are the ideal arbiter of the land value tax, as they have the infrastructure to enforce it while not being too large. Of course, this means that each individual state legislature would have to approve of the plan, but the political implications in general are another discussion entirely.
How would a land value tax have stopped the mortgage crisis?
It wouldn’t have, really. While it fixes a lot of rent-seeking, there are other profit incentives that would have to be fixed later on. Generally, mortgages that people get on large houses are completely different from paying rent to a landlord, so it would have to be solved with general ownership transfer. However, the land value tax would affect the power of the banks and other mortgage holders enough that the transfer could be done more easily.
How would a government actually fund public housing?
For a more in-depth idea of how public housing funding would work practically, I suggest reading People Policy Projects’ report on social housing, which is very thorough. I differ from their suggestions in that I believe that a land value tax should fill some of the costs, but they lay out how higher rents can subsidize lower rents.
How would the government acquire the land to build public housing?
This can be done a variety of ways. First, since the profit incentive for sitting on land has largely been removed, acquiring land from landlords should be significantly easier than it is now, so that is one option. Second, many cities and counties already have some form of land bank or a non-profit may have a community land trust, and land from those could be used to build public housing. Third, and this is a last resort, eminent domain could be used to get land from particularly stubborn owners that were misusing land that would be better for affordable housing. As long as they were fairly compensated.
How would neighborhood or apartment building tenants buy their communities?
While the details would come down to whatever legislation laid out the process, it would probably be similar to how residents could buy out a landlord now, just subsidized by a local government. Ideally the process would be done through some sort of tenants union, allowing it to proceed in an organized way.
How would a resident-owned community function?
I should say that the term resident-owned community is already taken by a type of organization that typically deals with mobile homes, but it fits perfectly with the type of organization, so I am still going to use the term. That being said, it would different from neighborhood to neighborhood, apartment building to apartment building. However, the structure should be less like a home-owners association, which tends to drift to petty tyranny, and more like a limited equity housing cooperative, which tends to be more democratic and applicable to the situation I describe here.
What about the homeless and other people who are actively not housed right now and couldn’t afford any sort of home?
This is probably the biggest issue before housing is taken off the market entirely. The short answer to this is that the steps listed above should not be taken as completely comprehensive. There should also be programs that help get homeless people off the street immediately. This can mean either treating any sort of addiction or mental illness they might have or simply giving them a home until they’re able to get a job and support themselves. Homeless and housing insecure people are not a homogenous group, so the solutions would depend on the individual. Something like Norway’s Housing First model would be a good model.
If someone couldn’t get any of the houses they selected what would happen?
This is one of the biggest potential issues with the suggested distribution system. While it is a problem that exists in the current system, just based on money rather than choice, it should still be figured out. I hate to invoke the algorithm again, as it is not a thing that exists yet, but there are ways to tell if houses are similar to each other, and an algorithm could put someone in a similar home to the ones that they requested and did not get, whether that be based on amenities and location. And if too many people were getting rejected from the houses they want, that’s a sign that more housing needs to be built.
Wouldn’t centralizing the housing system be a violation of privacy?
This is definitely a concern with any large data scheme, and security would have to be at the center of any technological project like this. However, it is not much different than the information the government already has on people, so it should be manageable.
Hopefully this begins to make you think about the possibility of de-commodifying housing, and maybe even other needs as well. While the idea didn’t use to be a radical concept, we have drifted so far to the right in society that any mention of taking a basic need off the market sounds like a fairy tale. While these steps are not particularly likely in the coming decades, I hope to at least push your imagination a little bit about the limits of what is possible.