On the Crisis of Liberalism (IX); the housing accessibility shortage.
Alex Aragona of The Curious Task did another podcast (here) with me on “Is Post-Liberalism Already Here?” It’s a wide-ranging interview and once we get past the first two questions it becomes a really neat conversation between us. Alex is slightly more anarchist than I am (he turned me back onto reading Chomsky a few years ago), but because we are both outside the United States we can put some things in a fresh perspective. (Also, shout out to Sabine El-Chidiac for excellent production!)
Today’s post develops an argument mentioned during the podcast that pertains to the crisis of liberalism. This post is, in fact, the ninth post (recall here (I); here (II); here (III); here (IV); here (V); here (VI); here (VII); and (VIII) in an open-ended series (see also here, here, here, here; and here) on the current crisis of liberalism (which I date to 2008/9). The argument pertains to the relationship between the affordable housing crisis, political dysfunctionality, and the rise of a new kind of politicians.
One structural source of weakness of the disenchantment with contemporary liberal democracies is that it does not seem to be able to solve some important, even bread and butter, policy challenges. I have in mind, especially, the accessibility of housing in popular, urban environments relative to income of younger workers, especially. (I call this the “accessibility problem.”) People find themselves living with their parents or with many roommates for financial reasons long after they had expected to do so. This is true in most OECD countries (see here).+
For a long time I used to think this was caused primarily by a toxic combination of rent-control, restrictive zoning laws (and building codes), mortgage deductions, and easy money by central banks (which lead to asset price inflation): all of which reduce supply and increase price of housing as population grows. Perhaps, lack of investment in social housing, too. Undoubtedly all of these play a contributory role. But even in places where these causes are absent or less present the accessibility problem is a hot political issue.
Somewhat, paradoxically perhaps, the root cause of the accessibility problem is itself political. For in many jurisdictions local government and property-owners that are local voters have an interest in keeping land and property values high. For local governments land is directly and indirectly a major source of revenue (and among the few they control directly). And bourgeois property owners (like myself) benefit greatly from increasing property values (despite the increased taxes that follow). This is familiar enough.
Depending on one’s political ideology one has a tendency to emphasize one or another of the causes listed so far. Politicians and their echo-chambers have responded by scapegoating immigrants, asylum seekers, foreign students, and (foreign) real estate speculators. All the scapegoats have been mentioned in Dutch political life during the last few years. (In America one may also hear frequently about environmental regulation and activists in this context.)
So much for set-up. What’s peculiar about all of this is that ordinary logrolling and deal-making should allow politicians to resolve or dissolve the accessibility problem. The fact that politicians, opinion-makers, and journalists routinely resort to scapegoating is indicative of this failure of ordinary political bargaining. It’s been nagging at me that even the most astute and impartial commentators couldn’t explain the ultimate source of the problem here. The accessibility problem is not like an intractable culture war (even if, as I suspect, the salience of a culture war my be a symptom of the intractability and intensity of the access problem).
A former PhD student, Vera Vrijmoeth (she now works at the Dutch Trade Union federation), pointed me to a better explanation. Vrijmoeth has been fascinated by the ways in which easy access to credit (or mortgages) can itself be a source of wealth inequality. In fact, as she points out the Dutch mortgage deduction (a tax-credit on mortgage interest) is usually defended by policy-makers because housing is a means to build up wealth or capital (see here [In Dutch]. The Dutch are not idiosyncratic in this sense. I return to Vrijmoeth.
Now, in recent decades we have gotten used to the idea of turning a home equity into an ATM or ‘equity extraction’ (even if that has stagnated). So, one can understand the attraction of such a policy to present home-owners (and even the general economy as the Greenspan Fed argued). But the general policy of increasing housing prices as a means to wealth predates the financial system’s ability to turn home equity into ATMs. It goes back to the core of the New Deal, and the founding of Federal National Mortgage Association or ‘Fannie Mae’ and the way it shaped and influenced the post WWII welfare states in most liberal democracies.
One of Vrijmoeth’s key insights is that a policy of ever increasing housing prices as a means to wealth increase itself generates a kind of wealth pyramid, where simultaneously entry from the bottom into the pyramid gets harder and harder. This is especially so when the increase in home prices outstrips productivity/wage growth as it does when supply of new homes is hindered and the prices of existing homes and land are supported indirectly through policy. I found this eye-opening because it also helps explain why the accessibility problem is so entrenched. Let me explain.
In nearly all liberal democracies, it is quite normal to treat “property” as “the ideal retirement asset for homeowners, with high house price growth helping downsizers release cash to fund their golden years.” (That’s from a Moneyweek article that is prompted by the idea that this may not last.) This is conventional wisdom in retirement planning and investment advising as any google search or (tenured) faculty party will reveal. Basically since WWII part of the implied social contract between governments and middle class citizens is that with rising prosperity, policy will allow homes to be a key means toward comfortable retirement. (Let’s call this the ‘retirement contract.’) All the policies that promote the retirement contract thereby reinforce the pyramid diagnosed by Vrijmoeth.*
As an aside, Holland is rather unusual in one respect. It has long established and rather wealthy pension plans/schemes that cover most employees. (It’s by far the largest such system in the world per capita.) So, the Dutch can afford to speak in euphemism about the relationship between home equity and retirement.
The accessibility problem is irresolvable by ordinary political means like logrolling not just because middle-class home-owners are a formidable voting block everywhere. But primarily because there is no obvious alternative, replacement policy the government can propose to generate or create as (relatively) lush a retirement for this group as the status quo. In most countries maintaining existing public retirement schemes is already a challenge (one that closing borders to immigrants will only exacerbate). Mandatory saving for retirement is much less appealing than promoting home equity with its indirect social costs. For an ordinary politician it would be political suicide to tackle or even mention the retirement contract unless they locally represent an unusually youthful electorate.
The inability to reimagine and renegotiate the retirement contract is also why even very astute and generous commentators like Will Wilkinson, who correctly diagnose ‘NIMBY entitlement,’ don’t really get to the core of the problem. Do read his essay because it is forthright on the ways in which the status quo in American zoning practices expresses and reinforce white supremacy. (This is also true in other places, but not as well documented.) Even if it is true — let’s stipulate — that the origins and continued nature of the accessibility problem are racialist in character, diagnosing it in this fashion does not solve the ways in which the retirement contract blocks change. It’s not a winning political strategy to solve the accessibility problem.
So, on my reading of our moment in time, the accessibility problem is so entrenched that many voters are willing to give undemocratic hucksters a chance if they offer to solve it by whatever means necessary. (Recall above how scapegoating and the accessibility problem are linked in popular discussion.) I don’t mean to suggest the accessibility problem is the main source for so-called ‘democratic backsliding.’ I also don’t even mean to suggest that the voters of far right parties are primarily motivated by it.
Rather the accessibility problem entrenches the sense of political malaise of democratic politics. Among ordinary citizens it undermines the resistance to hucksterism and gangsterism in political life, and it saps the sense of legitimacy that surrounds the politics of debate and dialogue. The fact that the rich and upper middle classes are capable of passing on their wealth means that the accessibility problem also generates a quite visible sense of unfairness about the system.** And so it is symptomatic for the crisis we’re in.
+I suspect this is also connected to declining birthrates. The economist, Robert J. Barbera, pointed out to me that China has an especially perverse version of the accessibility problem combining enormous urban vacancy with high entry prices in order to maintain the fruits (?) of the housing bubble (and prevent financial implosion of connected insiders).
*Vrijmoeth’s position seems to be that the pyramid effect she is interested in is an effect of asset markets more generally (a la Piketty we might say). But on my view this is only so when policy puts effective structural floors under markets.
**I thank John Quiggin for emphasizing this point.