Via Dean Baker, Matt Yglesias slices at the heart of the apparent contradiction between a strategy to increase household wealth via homeownership and a desire to ensure housing affordability. I have some thoughts.

A while ago I aborted a half-drafted attempt to add a comprehensive entry into the Guaranteed Basic Income discussion that was hot in a certain tres geeque segment of the blogosphere a few moons ago. One of the points I wanted to discuss at that time was a counterproposal being floated that endorsed a guaranteed issuance of some quantity of capital at some point in time rather than a guaranteed series of regular payments. At the time my argument against that was focused on failing to protect those who were vulnerable, exploited, or just plain irresponsible; but I think the issue of housing policy demonstrates another, perhaps deeper flaw in that kind of system, and in the broader program to empower individuals via ownership of property.

To summarize/generalize/probably bastardize, one of Ricardo’s great contributions was the twinned insights that rents accrue to land and surplus production accrues to rentiers. The transition from agriculture to industry and information hasn’t undone that insight as much as it’s relocated it – the economics of urban agglomeration has made land in metropolitan areas, especially in high-wage areas and neighborhoods and those in the urban core, extremely valuable and therefore extremely expensive. In a purely “free market” for land and housing it is not unreasonble to surmise that land ownership would quickly become highly concentrated and this would, absent some public policy intervention, become economically, politically, and morally problematic.

In our society, we solve this problem through a network of incentive structures that encourage, enable, and empower individuals to own their own homes – that is, to purchase and own via leverage the land and house they occupy rather than rent them. This is the the public policy solution you might call “democratic rentiership” – essentially, rather than deal with a handful of massive rentiers, to create a nation of little rentiers, all receiving implicit rents from occupying their homes without paying rent.

The problem with creating a nation of little rentiers, though, is that you have created a vast, broad-based interest in increasing the value of the owned property. In this case, that property is actually two inseperable but distinguishable factors – the land and the house upon it, a machine, capital, that provides at its most basic a flow of housing to its occupant. By incentivizing individuals to own this bundle of land and capital, we are incentivizing them to seek and encourage an increase in not only the value of land – an unamibigous good that is a symptom of increasing wealth, prosperity, and happiness – but also of the house which is more often than not a symptom of an artificial scarcity in housing units created by legal regimes that restrict the housing unit/land unit ratio. I would argue that any program that tries to leverage public resources or create incentives to encourage democratized ownership of rent-producing assets would have the same effect.

Now, in terms of a static equilibrium, there is no reason to prefer, per se, widespread ownership of land, capital, or any source of rents rather than a tax and redistribution system that targets the rentiers for the former and the renters for the latter, and in some ways it’s preferable. But one thing that I think distinguishes progressives is insights into dynamic equilibria – ie, that a society in which a small number of people control a vast amount of the wealth is prone to instability, and additionally that under those circumstances the tax and redistribution system is unlikely to survive the effort of the concentrated power of the rentier class brought to bear on terminating it. Not to mention that while, in theory, a large owner of many, many houses may be more able to bear the cost of the myriad small occurances of maintenance that houses demand, in practice landlords absent a strong system of legal accountability often will be derelict in those duties.

Another issue, though, is that there are certain ineffable sources of utility that come from homeownership that are difficulty to quanity, price, or address through public policy. I plan to discuss this more soon in this space, but my wife and I just bought a house, and among the myriad reasons we did so is a frustration with what you might call the spiritual limitations of renting. My wife and I have been renting together for years and we own some art – nothing fancy, some posters and prints and photographs – that we have never hung, tolerated ugly wall colors, yearned for hardwood floors, put up with hand-me-down furniture, and fretted frequently over issues with landlords and co-tenants of the same building. There is a sense of liberation, autonomy, and actualization that come with having that level of possesion, control, security, and intimacy with the space one calls home, and it’s likely rooted in something primal and difficult to model. A nation of rentors, rather than rentiers, may be one that creates certain economic efficiencies but also loses…something.

Note that this post doesn’t contain any proposals. On this, at this moment, I am lacking.

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