I have talked for a while about the issue of high housing costs (owning and renting), and I mention housing reform frequently. I had someone ask me what I meant about legislation for housing reform, so I thought I’d lay it out here:
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First off, I am not in favor of rent controls.
This is what people always think I mean, which I think might be because they have a more conservative bent and think anything that isn’t THAT must be socialism-from-satan.
I am not in favor of rent controls for historical reasons – it has been tried in New York (where you see rent-controlled apartments, which end up just being subleased legally or otherwise) and Chicago (where you see the Projects). I am not convinced one can “fight the market” in this way. So, not in favor of straight up rent controls.
I also think it de-incentivizes improvements to properties. If an owner knows they can only charge X amount of dollars no matter how much they put into it, they will do as little as possible, rather than motivating them to improve the property for higher return. So you end up with more slums, or forced evictions, and so forth. Not a fan.
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Secondly, the main issue at it’s core is supply and demand.
Which sounds simple, but is difficult to address. There are a lot of factors that lead into it, and housing is a long-term asset, so changes in the market take years to build and correct. I think there are several factors leading to a housing shortage.
1 – Long term real estate speculation. This started at least in the 80s, and probably 70s. You might have seen the late night “earn money in real estate with no money down” ads playing after all the good shows went off the air. Essentially, the idea is to take a property, make minimal improvements, and flip it for a profit.
I’m not really opposed to this in principle. I’m in favor of people using the skills if they have them to build order and beauty in the world, and I think this is one way.
The problem comes in when SOOO many people start doing this, there aren’t any “first time” homes left to buy for people who AREN’T flipping.
In other words, it used to be that a young family would buy a crappy house, fix it up or at least build up some equity, then sell it and move to better home, and repeat. This is no longer possible (by which i mean in the last 10 years or so) because the crappy houses are all being bought up by investors.
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People will say “well, that’s just the market,” which is true for most commodities. But housing (like healthcare) is different, because of Inelastic Demand. Basically, this means that for some goods, the market CAN’T function normally because demand DOESN”T go down below a certain point. That is, people need somewhere to live, and if that means they have to go without food, or bunk with 3 other families, or work 4 jobs, that’s what they will do, because they HAVE to have a roof.
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And again, people will say “well, over time, the market will correct when there’s too many investors,” Which I do agree with, except for one thing – people don’t HAVE to sell because of A) they have multiple homes, so aren’t that motivated to sell a second or third one, B) legislation.
Essentially, we have legislation that makes rental properties easier to write off on taxes, thus limiting loss (my understanding is that this is complicated, and I don’t want to get into all of it, but I think you get the general principle). This is why in some cases, it’s cheaper for a property owner to let properties lie empty (hello local mall) than to rent them out at cheaper prices.
I get the reason for this, to stimulate investment, but in the housing market, it hurts more people than it helps at this point. I think we need to let the market run its course – if you have a property that is not fully rented, you lose money. That’s the nature of investment.
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Material costs are another issue.
Obviously none of this would matter if we just built more housing. But unfortunately, that isn’t happening as much now (or, I should say, we are still trying to catch up) after a couple of decisions made by a certain former political leader, coupled with the devastation of the global shutdown during Covid (and yes, I think the second is more impactful, but the first bugs me, so I’m including it).
Building and improving home costs have skyrocketed for a lot of reasons – materials, shipping, regulatory changes, environmental issues, wage changes, land costs, and so forth. Some of those are legislative and can be addressed, some are more difficult.
The end result is that if a home developer has a lot to build a house on, it’s far more economically viable to build a 2 plex or 4 plex, or a 500,000 dollar home, than to build a 150,000 dollar home. Again, I get it, but it reduces the number of starter homes available, which means people with existing capital can buy them up, which drives up prices, which means only people with capital can afford the home, which drives up prices, and so forth.
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So, what can be done about it?
Obviously, long term, it has to be market forces driving the price down. Some of that we can address legislatively.
1 – Enforce zoning laws.
I kind of like this one, though I’m just learning about it. Essentially, if you buy a home to rent out, and especially for an AirBnB or similar short-term rentals, it’s no longer a Residential property, it’s commercial.
Some cities are starting to restrict that sort of use of a home, because it is against zoning laws to have a commercial property in a residential area.
I like this one because it doesn’t require new legislation, just enforcing the old. And it allows people to build houses to rent if they want, just not in residential areas (think of it like building a hotel). And it keeps local neighborhoods for local residents. All good things in my opinion.
2 – Build more starter houses.
I like this one as well, and I prefer it to the other govt spending programs. Essentially, the govt builds many many small homes (say, 2 bedrooms) in cities and towns, as starter homes for young people. They are not rented (i.e. not Urban Housing), but sold. This creates both supply and puts pressure on existing home prices.
I like this as a way of USING the market, rather than fighting it. I think you’d have to couple this with some income guidelines perhaps, and residency requirements (have to stay at least 5 years, for example). But overall, I think pretty workable.
3 – Legislation to require residency.
For me, I’d like to keep open the avenue of people with construction skills to take older homes, fix them up, and sell them. The main issue I have is that if someone is doing that with 5 homes, there’s no pressure on them to sell, so prices can remain high. I think we can combat this by legislation saying you must reside in a home you own. (or reside within a reasonable amount of time, like 6 months).
For example, you can buy a fixer-upper, but you have 6 months to fix it to the point where you can move in. Then you must reside there for a year before selling (or whatever time frame). Alternatively, you have one year to either move in or sell a home, or incur financial penalties. That is, if someone just wants to flip homes, that’s fine, but you have to sell it quickly. If not, you start losing your investment (hence why it’s called speculation). Again, the point is to keep starter homes on the market, not held in the hands of a few in order to drive prices up.
Couple this with general legislation that you must reside in a home for at least 6 months out of the year. (I’m ok with putting SOME price limits on this. That is if the home is appraised at less than 300,000 or something. The reason for this is I’m not NECESSARILY opposed to millionaires having homes in Aspen and L.A. I’m opposed to not having low-cost starter homes on the market)
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Finally, I want to address something specifically for Christians.
I remember hearing Dave Ramsay talking to a home owner once. The owner was questioning if he should raise the rent on a home he was renting out, because the people there now wouldn’t be able to afford it and would have to be evicted.
Note the situation. This is a home ALREADY owned and rented. It was not recouping the loss of purchase, it was the opportunity to charge more.
Ramsay’s response was “YOU’RE not kicking them out, the MARKET is kicking them out.” As if we are just helpless before the market, nothing we can do.
I find this profoundly anti-biblical. We are not helpless before anything but God. We can resist any market forces we choose. In fact, I would argue much of the Bible is encouraging or demanding we do just that. We do not serve God AND money.
Secondly, if I may quote “the greatest of men,” if you have one house, you can give one to someone who doesn’t have any. That’s essentially what a cloak was at the time, which is why it was illegal under Jewish law to take someone’s cloak as collateral. they NEEDED that cloak, the same as people NEED housing now.
The Old testament is full of prophets decrying the wealthy people of Israel for driving the poor into destitution by exorbitant rents (the cloak issue) , and then using that money to “give to the church” i.e. the Temple.
God is furious with them for thinking that “being wise with investments” matters more than caring for the poor. Squeezing people to make enough to “give a little” to charity or the local church is not what God is after. This is our way of assuaging our conscience while still keeping control of OUR money and building up a solid nest egg to trust in.
I think we would be wise as Christians to remember this. Jesus did not tell us to be wise with money, i.e. make the most we can. He said to sell all you have, to share generously even when it hurts you financially, even when it doesn’t make economic sense.
We need to be careful not to make “financial wisdom” or “the market” into our God, directing our actions based on what will benefit us the most personally, Keep your eyes open to the bigger picture of helping the poor. If it costs you a home to help a poor person, wouldn’t you like to stand before God and say “I did what I could”? Or would you rather say “I made some good return on my money so I could make passive income and retire at 50”?
Which do you think God will say “well done” to?