Last night my brother and I were talking, and he said to me, “Okay Jam, we’re restarting the world from scratch. What are the three things you would do differently to make the world a better place?” I gave a couple of coherent answers at midnight, but after sleeping on it and thinking a little more, I want to write those answers down for discussion. This is the first of those answers.
A few qualifications: this list is (obviously) not exhaustive; the ideas here are not totally fleshed out; I’m trying to stick to actionable suggestions instead of platitudes like “No hate/no racism/no sexism,” because those are boring and obvious. I’d also really like to hear what your ideas would be. So with the preamble out of the way, let’s get to it.
1) Prevent Homes From Accruing Value Beyond the Rate of Inflation
Admittedly, this is a response to a very recent development in human history- the explosive growth of housing costs in the last forty years. This article shows how much more expensive housing has become, but here is the relevant info:
Here’s how much the median home value in the U.S. has changed between 1940 and 2000:
- 1940: $2,938
- 1950: $7,354
- 1960: $11,900
- 1970: $17,000
- 1980: $47,200
- 1990: $79,100
- 2000: $119,600
Here are those values again, adjusted for 2000 dollars:
- 1940: $30,600
- 1950: $44,600
- 1960: $58,600
- 1970: $65,600
- 1980: $93,400
- 1990: $101,100
- 2000: $119,600
It’s natural for prices to rise over time. But the issue here is that home values are outpacing inflation, making it nearly impossible for new and young buyers to enter the market.
Without getting too far down into the weeds on this topic, the basic reason for this (as I understand it, I’m certainly not a housing expert) is the use of housing as an investment tool beyond its original purpose as shelter from the elements. There’s alot of writing and research on this subject, but suffice to say that one of the major drivers of housing prices is housing’s use as a financial asset.
Isn’t this completely insane though? Take a step back from the conventional wisdom and think about what we’re saying here, that the home you live in is the primary generator of wealth for you and your family. And as you increase your wealth, you make it harder for the people around you (and especially the people who come after you) to afford a home, a basic necessity of human life. This system is so insane that it literally collapsed, but the response was to patch it back together again. Now it lumbers forward, like a zombie investment platform, consuming everything around it. Have you seen the headline about a six-figure income being considered “low-income” in certain parts of California? After I finished scoffing, I actually read the article and it turns out the primary driver of that designation is housing costs. Building wealth through home ownership is a crazy, unsustainable model.
And yet the idea persists. In the same article I took the above info from, the following line is quoted:
However, if you can swing it, many experts still agree that buying a house is a good investment. Self-made millionaire David Bach says that not prioritizing homeownership is “the single biggest mistake millennials are making.”
This is precisely the problem, the refusal to acknowledge that housing as an investment has dire consequences. There are discussions about how to prevent crises in the future, but the problem of housing as an investment tool is not simply about the inevitable crises. It’s also about regular people’s inability to afford homes or rent in general. As part of my job, I read a bunch of housing reports. One of them is Out of Reach 2018, a report on housing affordability across the nation. The outlook is grim; take my former zip code of 06120 as an example:
It doesn’t take alot of math to see that these numbers simply don’t add up. [$16.73 an hour X 40 hours a week X 52 weeks in a year]= $34,798.40. That’s a full $10,000 more than the MEDIAN income for this zip code. That means that half of the households in 06120 make less than $24,080 annually. For all of the concern about gentrification pricing people out of their neighborhoods, we’re already there.
So if I had a magic want to remake the world, the first thing I would do is lock increases in the price of housing to inflation. Maybe a step beyond that might be necessary, like removing housing from the financial system entirely- no home equity loans, no appraisals, the whole kit and kaboodle. Again, we have to grapple with the craziness of how we treat housing (and land more broadly). There are very few goods which we treat this way- can you imagine how buying a car would be if vehicles increased their value over time? A house should just be a house.