Is
Homeownership the Answer?
There is a saying that four moves is equal to a fire in terms of the effects
on one's possessions. It is also hard on one's life, one's children,
one's peace of mind, one's leisure. When a move comes as the result
of a job opportunity, it can be a pleasurable experience, particularly if
an employer pays for deluxe services surrounding the move. But
for most of us, moving is something to be dreaded.
Is homeownership "the answer?" Much depends on which question we
seek to answer. The
data suggests that homeownership has many benefits for families in terms
of stability, and
certainly those who have title to their own homes on average have far
more other assets than those who do not have title. Those fortunate
enough to own property in places where land is appreciating rapidly may
find that their house earns more each year than their own work
does. But that is a separate matter from the question of whether
increasing homeownership is key to making people more equal.
The homes which those who currently don't own
them can afford are often located so far from their jobs, or from the centers
of economic
activity, that it may not be in their best interests to push to increase
homeownership from, say, 69% to 70%, particularly if to do it they must
take out adjustable rate mortgages, 40 year mortgages, interest-only
mortgages, 100% or 103% financing, or commit a larger share of their
gross income to paying for housing than they can reasonably afford --
particularly in an economic environment in which wages in the bottom 90%
of the income spectrum are not rising as they were a generation ago. A
large share of the mothers of young children are already employed and their
families are spending signficant
income
on childcare. (See Elizabeth Warren and Amelia Warren Tyagi's book, The
Two Income Trap.)
But almost certainly the homeownership rate will continue to rise for a few
years -- strictly as
a result of age-related demographics and the size of the Baby Boom
generation. Administrations and housing departments will claim credit for
this, crowing about the success of their programs promoting homeownership.
But if the question about homeownership is whether making virtually
everyone a homeowner is going to promote genuine social or economic equality,
or shared
prosperity, or general well-being, in American society,
the answer is No!
In the language of the fences
and small bandages page, this is a fence which may help keep a few
people from poverty.* It is not a solution to the problem of the privatization
of land rent, because residential land rent is trivial compared to the
land rent on choice commercial sites, particularly those in the central
business district or served by our major highways.
*Those who think our poverty
measure provides an over-estimate of the number of needy people sometimes
point to the statistic,
drawn from census data, that 43% of the poor "own" their own homes. Ignored,
of course, is that "ownership" may be 10% for the "homeowner" and 90% for
the mortgage lender, or that the fully owned home is an older cottage with
few modern amenities, and insufficient income available to maintain it.
If we want to achieve justice and prosperity and equal opportunity, we need
to move toward making land common property, by collecting as our common treasure
a significant portion of the economic value of the land. When we do that,
many more people will find themselves able to afford to own their own home,
closer to their work, without hocking their futures. And their home equity
will no longer be their largest asset, because they'll be able to invest
in other goods, which will promote capital formation and employment, creating
opportunity. (What's not to like? If you think that appreciation in land
is your private treasure, you might not think this in your best interests,
especially if you own a very choice piece of urban land you think your grandchildren
should inherit.)
Henry George: What
the Railroad Will Bring Us [Californians, and particularly San
Franciscans] (1868)
The
truth is, that the completion of
the railroad and the consequent great increase of business and
population, will not be a benefit to all of us, but only to a portion.
As a general rule (liable of course to exceptions) those who have it
will make wealthier; for those who have not, it will make it more
difficult to get.
- Those who have lands, mines, established businesses,
special
abilities of certain kinds, will become richer for it and find
increased opportunities;
- those who have only their own labor will be come poorer,
and find it harder to get ahead --
- first, because it will take more capital to buy land or
to get into business; and
- second, because as competition reduces the wages of
labor, this capital will be harder for them to obtain.
What,
for instance, does the rise in
land mean? Several things, but certainly and prominently this: that it
will be harder in future for a poor man to get a farm or a homestead
lot. In some sections of the State, land which twelve months ago
could have been had for a dollar an acre, cannot now be had for less
than fifteen dollars. In other words, the settler who last year might
have had at once a farm of his own, must now either go to work on wages
for some one else, pay rent or buy on time; in either case being
compelled to give to the capitalist a large proportion of the earnings
which, had he arrived a year ago, he might have had all for of himself.
And as proprietorship is thus
rendered more difficult and less profitable to the poor, more are
forced into the labor market to compete with each other, and cut down
the rate of wages -- that is, to make the division of their joint
production between labor and capital more in favor of capital and less
in favor of labor.
And so in San Francisco the rise in building lots means, that it
will
be harder for a poor man to get a house and lot for himself, and if he
has none that he will have to use more of his earnings for rent; means
a crowding of the poorer classes together; signifies courts, slums,
tenement-houses, squalor and vice.
San Francisco has one great
advantage -- there is probably a larger proportion of her population
owning homesteads and homestead lots than in any other city of the
United States. The product of the rise of real estate will thus
be more evenly distributed, and the great social and political
advantages of this diffused proprietorship cannot be over-estimated.
Nor can it be too much regretted that the princely domain which San
Francisco inherited as the successor of the pueblo was not appropriated
to furnishing free, or almost free, homesteads to actual settlers,
instead of being allowed to pass into the hands of a few, to make more
millionaires. Had the matter been taken up in time and in a proper
spirit, this disposition might easily have been secured, and the great
city of the future would have had a population bound to her by the
strongest ties-a population better, freer, more virtuous, independent
and public spirited than any great city the world has ever had. ... read the whole article
Charles B. Fillebrown: A Catechism
of Natural Taxation, from Principles of Natural Taxation (1917)
Q56. How would it affect the man who owns the house he lives in?
A. In nearly every case it would reduce his taxes. Roughly speaking, his
taxes will be less or greater in proportion as his house is worth more
or less than his land. ... read the whole article
Edward Dodson: Owning Land:
Key to Wealth Building?
Mason Gaffney: Geoism, Recession
and Control of Monopolies
As for the coming "boom," I
simply repeat my observation that there is
no U.S. economy; there are only regional economies competing with one
another as well as with other nations. We have the beginnings of
speculative booms in some places, stability in others, and continuing
recessions in others. People who
cannot sell their houses because they
owe more on them than they are worth cannot take their services
elsewhere to seek employment. So much for the mobility of the labour
force. This is one of the unfortunate sides of the American dream of
home ownership; when a lease expires, one simply does not renew.
Only around 25-30% of
households own their own homes. By good fortune,
I just read something that helps resolve the difficulty. It seems that
a great deal of anti-trust legislation from the Progressive Era had
been aimed at monopoly in the flicks, which had started with Thomas A.
Edison, who was as much a patent-litigation bully as he was a pure
inventor. Much of this legislation became unravelled under President -
guess who? - Ronald Reagan, spawn of the "entertainment" industry, and
political voice for same. Vertical integration and media mergers and
monopolization then ran wild. Disney under Eisner, of course, has
played a role in this. Disney as real estate developer throws its heavy
weight around brutally. Read the whole article
William F. Buckley, Jr.: Home
Dear Home
... So why is the cost of housing so high?
We learn that the average new house nationwide now sells for nearly $300,000.
The writer tells us, "I asked (a builder) what our children — my
kids are both under 8, I told him — would be paying when they're
ready to buy.
"'They're going to live with us until they're 40,' (the builder) said
matter-of-factly. 'And when they have their second kid, then we'll finally
kick them out and make them pay for the house that we paid for. And that
house will cost them 45 to 50 percent of their income.'"
Such data are dismaying, but perspective helps. "In Britain," the
builder explains, "you pay seven times your annual income for a home;
in the U.S. you pay three and a half." The Brits get 330 square feet
per person in their homes; Americans, 750 square feet. But choice parts
of the
United States face "build-out." Consider New Jersey. It currently
averages 1,165 people per square mile — denser than India (914)
and Japan (835).
And we confront, finally and inevitably, the question: What is to be done
about it?
Almost without exception, housing specialists concur, high home prices are
owing to zoning. Twenty years ago, in many quarters of the country, one
year would go by before the political authority would permit a developer
to begin
housing construction. In New Jersey, that interval now approaches eight
years. Delays of that kind have the effect of shrinking the amount of land
on which
houses can be constructed. We get the inflated costs so familiar. "(Some
authorities) used sample prices from 25 areas to show that the cost of housing
in a metropolitan area appears to be in direct correlation to its degree of
zoning ordinances," Gertner writes.
This is a politically remote source of trouble. People who have to wait for
a zoning agency to change its conventions, regulations, traditions and idiosyncrasies
will be very old before they acquire a new home.
Henry George, the eminent social philosopher of a century ago, turned the
attention of planners and economists, however briefly, to the indefeasible
factor of land scarcity. Capital and labor can increase; land cannot. ... read
the whole column
Jeff Smith and Kris Nelson: Giving
Life to the Property Tax Shift (PTS)
John Muir is right. "Tug on any
one
thing and find it connected to everything else in the universe." Tug on
the property tax and find it connected to urban slums, farmland loss,
political favoritism, and unearned equity with disrupted neighborhood
tenure. Echoing Thoreau, the more familiar reforms have failed to
address this many-headed hydra at its root. To think that the root
could be chopped by a mere shift in the property tax base -- from
buildings to land -- must seem like the epitome of unfounded faith. Yet
the evidence shows that state and local tax activists do have a
powerful, if subtle, tool at their disposal. The "stick" spurring
efficient use of land is a higher tax rate upon land, up to even the
site's full annual value. The "carrot" rewarding efficient use of land
is a lower or zero tax rate upon improvements. ...
First-time home
buyers make out like bandits. They'd pay a higher
land dues to their community but lower total taxes to government, a
lower price to the seller, and a lower mortgage to the lender. Is it
fair that one group should benefit so prodigiously? Yes. In many
US
cities, renters now outnumber owners. High rates of tenancy, as shown
in Goldschmidt's 1940s study of the Central California towns Arvin and
Dinuba, engender apathy and indifference, which are bad for democracy,
community involvement, street safety, and environmental protection. The
sooner young families can become homeowners, the better off all members
of society will be. ...
Mortgage lending rates are a subtle way of
disguising
rent as interest, of turning buyers into temporary yet serial tenants
(since people move so often and the first five years of mortgage
payment is nearly pure interest). Land dues are a way to keep locally
generated social values circulating in the local community. ...
A big problem needs a big solution which in turn
needs a
matching shift of our prevailing paradigm. Geonomics -- advocating that
we share the social value of sites and natural resources and untax
earnings -- does just that. Read the whole article
Jeff Smith: What the Left Must
Do: Share the Surplus
As Goldschmidt showed in his
classic 1940s study of two towns in
California’s Central Valley – Arven and Dinuba (one town of owner
occupants, the other a one-company town) – where people have a stake,
they vote, attend hearings, and use parks and libraries. Government
responds, filling potholes, funding schools, etc. Improving people’s
lot in life increases their participation in civic affairs.
The reform of collecting ground rent in lieu of taxing buildings
lowers
the cost of housing, which raises the rate of owner occupancy. When Pittsburgh PA
taxed land six times their rate on buildings, their affordable housing,
stable neighbourhoods, and low crime rate won the once strong union
town the title of “America’s Most Liveable
City” twice in the mid 1980s. Succumbing to pressure applied by
speculators, in 2000 the Steel City returned to the conventional
property tax. Construction starts in 2001 in the rest of Pennsylvania
fell 1.5%; in Pittsburgh, 38.1%. For 2001 and 2002, compared to 1999
and 2000, building permits declined 21.3% while nationwide they rose
6.7% (Incentive Taxation, 2003 June, Henry George Fdn). Read the whole article
Frank Stilwell and Kirrily Jordan: The
Political Economy of Land: Putting Henry George in His Place
However, it is also pertinent to note that land ownership today is significantly
less concentrated than in George’s time, with around 70% of Australians
being home-owners (including those in the process of purchasing their homes
with mortgage finance). According to the recent Household, Income and Labour
Dynamics in Australia (HILDA) Survey, home-ownership is unevenly distributed
between income groups, with 56% of households in the lowest income quintile
owning their own homes, compared to 85% of those in the highest quintile
(Kohler et al, 2004: 10). But this distributional inequality is significantly
less marked than the ownership of other assets, such as shares for example.
Of course, most land ownership for residential purposes involves very small
tracts, typically only about one-sixth of an acre in the suburban areas of
the major cities. Flat-owners, growing annually as a proportion of the population,
usually own less land and do so more indirectly through strata property titles.
So the form of land tax (that is, whether flat rate or on a progressive scale,
whether applying to all land or only that above a ‘threshold’ value,
or exempting owner-occupied property) becomes crucial to its effectiveness
as a mechanism for tackling distributional inequality. It is also crucial
to the political acceptability of land tax reform. ... read
the whole article
Peter Barnes: Capitalism
3.0 — Chapter 7: Universal Birthrights (pages 101-116)
Fast-forward to the twenty-first century. Land is no longer the basis for
most wealth; stock ownership is. But Jefferson’s vision of an ownership
society is still achievable. The means for achieving it lies not, as George
W. Bush has misleadingly argued, in the privatization of Social Security
and health insurance, but in guaranteeing an inheritance to every child.
In a country as super-affluent as ours, there’s absolutely no reason
why we can’t do that. (In fact, Great Britain has already done it.
Every British child born after 2002 gets a trust fund seeded by $440 from
the government — $880 for children in the poorest 40 percent of families.
All interest earned by the trust funds is tax-free.)
Let me get personal for a minute. My parents weren’t wealthy; both
were children of penniless immigrants. They worked hard, saved, and invested — and
paid my full tuition at Harvard. Later, they helped me buy a home and start
a business. Without their financial assistance, I wouldn’t have achieved
the success that I have. I, in turn, have set up trust funds for my two sons.
As I did, they’ll have money for college educations, buying their own
homes, and if they choose, starting their own businesses — in other
words, what they need to get ahead in a capitalist system.
As I hope my sons will be, I’m extremely grateful for my economic
good fortune. At the same time, I’m painfully aware that my family’s
good fortune is far from universal. Many second-, third-, and even seventh-generation
Americans have little or no savings to pass on to their heirs. Their children
may receive their parents’ love and tutelage, but they don’t
get the cash needed nowadays for a first-rate education, a down payment on
a house, or a business venture. A few may rise because of extraordinary talent
and luck, but the majority will spend their lives on a treadmill, paying
bills and perhaps tucking a little away for old age. Their sons and daughters,
in turn, will face a similar future.
It doesn’t have to be this way. One can imagine all sorts of government
programs that can help people advance in life — free college and graduate
school, GI bills, housing subsidies, and so on. Such programs, as we know,
come and go, and I prefer more rather than less of them. But the simplest
way to help people advance is to give them what my parents gave me, and what
I’m giving my sons: a cash inheritance. And the surest way to do that
is to build such inheritances into our economic operating system, much the
way Social Security is.
When Jefferson substituted pursuit of happiness for Locke’s property,
he wasn’t denigrating the importance of property. Without presuming
to read his mind, I assume he altered Locke’s wording to make the point
that property isn’t an end in itself, but merely a means to the higher
end of happiness. In fact, the importance he and other Founders placed on
property can be seen throughout the Constitution and its early amendments.
Happiness, they evidently thought, may be the ultimate goal, but property
is darn useful in the pursuit of it.
If this was true in the eighteenth century, it’s even truer in the
twenty-first. The unalienable right to pursue happiness is fairly meaningless
under capitalism without a chunk of capital to get started.
And while Social Security provides a cushion for the back end of life, it
does nothing for the front end. That’s where we need something new.
A kitty for the front end of life has to be financed differently than Social
Security because children can’t contribute in advance to their own
inheritances. But the same principle of intergenerational solidarity can
apply. Consider an intergenerational transfer fund through which departing
souls leave money not just for their own children, but for all children.
This could replace the current inheritance tax, which is under assault in
any case. (As this is written, Congress has temporarily phased out the inheritance
tax as of 2010; a move is afoot to make the phaseout permanent.) Mind you,
I think ending the inheritance tax is a terrible idea; it’s the least
distorting (in the sense of discouraging economic activity) and most progressive
tax possible. It also seems sadly ironic that a nation that began by abolishing
primogeniture is now on the verge of creating a permanent aristocracy of
wealth. That said, if the inheritance tax is eliminated, an intergenerational
transfer fund would be a fitting substitute.
The basic idea is similar to the revenue recycling system of professional
sports. Winners — that is, millionaires and billionaires — would
put money into a kitty (call it the Children’s Opportunity Trust),
to be divided among all children equally, so the next round of economic play
can be more competitive. In this case, the winners will have had a lifetime
to enjoy their wealth, rather than just a single season. When they depart,
half their estates, say, could be passed to their own children, while the
other half would be distributed among all children. Their own offspring would
still start on third base, but others would at least be in the game.
Under this plan, no money would go to the government. Instead, every penny
would go back into the market, through the bank or brokerage accounts (managed
by parents) of newborn children. I’d call these new accounts Individual
Inheritance Accounts; they’d be front-of-life counterparts of Individual
Retirement Accounts. After children turn eighteen, they could withdraw from
their accounts for further education, a first home purchase, or to start
a business.
Yes, contributions to the Children’s Opportunity Trust would be mandatory,
at least for estates over a certain size (say $1 or $2 million). But such
end-of-life gifts to society are entirely appropriate, given that so much
of a millionaire’s wealth is, in reality, a gift from society. No one
has expressed this better than Bill Gates Sr., father of the world’s
richest person. “We live in a place which is orderly. It’s a
place where markets work because there’s legal structure to support
them. It’s a place where people can own property and protect it. People
who have the good fortune, the skill, the luck to become wealthy in our country,
simply have a debt to the source of their opportunity.”
I like the link between end-of-life recycling and start-of-life inheritances
because it so nicely connects the passing of one generation with the coming
of another. It also connects those who have received much from society with
those who have received little; there’s justice as well as symmetry
in that.
To top things off, I like to think that the contributors — millionaires
and billionaires all — will feel less resentful about repaying their
debts to society if their repayments go directly to children, rather than
to the Internal Revenue Service. They might think of the Children’s
Opportunity Trust as a kind of venture capital fund that makes startup investments
in American children. A venture capital fund assumes nine out of ten investments
won’t pay back, but the tenth will pay back in spades, more than compensating
for the losers. So with the Children’s Opportunity Trust. If one out
of ten children eventually departs this world with an estate large enough
to “pay back” in spades the initial investment, then the trust
will have earned its keep. And who knows? Some of those paying back might
even feel good about it. ... read
the whole chapter
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