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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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