Socialized Housing

I was talking yesterday to a couple of fellow smokers from my building, both investment bankers, and I asked them, "In what way does the idea of endlessly rising residential home prices differ from a Ponzi scheme?"

They both replied, "It doesn't."

A "free" market in residential housing is a recipe for disaster. The housing market has almost everything you can think of that causes market failure: the "infinite value" of having housing, the long lead times to create new housing, the tiny proportion of housing that's actually on the market at any given time, the very long transaction times to buy or sell a house, and the direct correlation between falling home values and job loss (If you lose your job in a recession, then you'll lose all of your wealth (your down payment) when you have to sell your house... if you're lucky. If you're not lucky, you'll lose your credit rating and be unable to even rent, much less buy again.)

Even rising home prices due to migration (such as to the San Francisco Bay Area, where prices remain high), which is not a totally bullshit Ponzi scheme, still does not do what "free" market theory says it will do. If it did, we'd have ten times as much housing in San Francisco, and rents and housing prices would go down. We don't have more housing, and prices haven't gone down, because individual property owners realize that only enforced scarcity keeps their "wealth" secure. Because of all the structural impediments to a "free" housing market, they have the ability to do so even in the face of tremendous macroeconomic pressure.

There simply isn't any choice but to socialize all residential housing.

But how would that work? Here are my thoughts.

Day 1, the government assumes ownership of all the residential housing. But not just any government, local government — borough, city or town — assumes ownership; your locally elected representatives become responsible for all local housing. Local governments usually have shorter terms: If you don't like how the city council is managing your housing, vote the fuckers out.

All mortgages and rents to anyone but the local government will become null and void, except for loans to actual builders, which the government will assume. If you were counting on the increasing value of rental housing, well, you're fucked. You were participating in a Ponzi scheme, which is immoral and usually illegal.

All residents have the secure right of tenancy: no one can be forced to move except for non-payment of rent or malicious or negligent gross mistreatment of the property. Residents may buy and sell the right of tenancy, but only when tenancy is directly and voluntarily transferred; the right of tenancy cannot act to secure any financial obligation. If the city exercises eminent domain, then they have an obligation to move the residents to similar housing and pay all moving expenses.

The basis for all rental will be the local replacement cost of housing of similar quality and size. The rent, therefore, should first cover the replacement of the property amortized over the total life of the house. Since houses typically last about 50-100 years, the replacement portion of the rent should be about 1-2% of the basis.

Since new housing sometimes needs to be built (because of expanding population), elected representatives can add the cost of building new housing uniformly to rents. So if housing is expected to grow by 3% per year, an additional 3% of the basis would be added to the rent.

(Since the local government would have massive cash flow, it can pay for new and replacement construction without borrowing money, saving enormous amounts on interest.)

Projected property maintenance, established by objective criteria and managed by the government (economy of scale), must also be added to the rent, as well as taxes to pay for residency-based services. Insurance can also be added to provide some cushion for people who lose their jobs, especially in a recession.

Given all the above, unless you own your home free and clear (and some expedient consideration could be made for those few), your cost of residency should be about 10-20% of existing rents and mortgages, with no impact whatsoever on home construction.

The only people who would be seriously fucked would be the bankers, and I doubt that anyone is feeling particularly concerned about their well-being right about now.

Update: Of course such a plan cannot happen under our current system, regardless of the overall benefits. We would be required to "compensate" the current absentee property owners, and such a massive transfer of wealth from the taxpayers to the owners of housing would make the government act as the bankers to capitalists. Even if we could somehow construct a legal theory that didn't consider absentee ownership to be Constitutionally protected property, there's no way the fascist motherfuckers on the Supreme Court would ever buy it.

Update 2: I've answered some of the objections raised in the comments.