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Housing Economics: Going Beyond Econ 101

Thomas Lord
Tuesday May 24, 2016 - 12:59:00 PM

Bear with me because I will start by addressing some housing economics but will get to homelessness and the housing crisis:

Someone in an online forum asserted to me that: "Increasing the supply to meet demand will help. But it won't make up for decades of neglect - had we been building market rate housing all along, "

Bosh. That is a popular myth but it is simply false. The myth is oft-repeated by lobbyists for developers, but the myth can be shown false in many ways. Those lobbyists who are not confused as to the facts are simply liars.

Not as proof, but just to give you something to think about....

Like the song says: "Do you remember your President Nixon"? From 1970 to 1990 the population of this city fell. Units were being withdrawn from the market. The occupancy per unit was falling. The 1970s and 1980s were a time of industrial contraction and stagflation (and the Bay Area economy had a much larger industrial component taking the brunt of this). By the 1980s, interest rates were through the roof. Home prices during this period grew, but they grew unremarkably in relation to general inflation. It is the absurd contention of the lobbyists that during this period, investors were anxious to add hundreds or thousands of units per year, each and every year. The failure to build lots and lots of new apartments during a period of expensive money and declining demand was, say these lobbyists, something we can blame on Berkeley liberals, all of whom are now gray, ponytailed, greedy millionaires. That is pretty much the line of argument you are echoing.  

 

The affordability crisis really revealed itself from 2000 to 2010. Under the loose monetary policies of the Greenspan Fed, during a time in history where there were few investments available in new production, asset prices including real estate started inflating through the roof. During that period, Berkeley gained new housing units FASTER than it gained new households. During that period, Berkeley's overall vacancy rate went up AND housing became less affordable. 

Are you sure you want to stick to that supply-side argument about the present situation? 

Now back towards the homeless issues: 

My online friend, remarking on the idea that more homeless people should leave town than do, wrote: "I'm not proposing to "evict" anyone. I am saying that if you are not housed and not generating enough income to be housed, you have a slim chance of becoming housed and should expand your field of possibilities" 

People are being evicted. Forced migration has picked up considerably. The highways are increasingly clogged as opportunities for work and opportunities for housing grow more and more distant from one another. Public transportation is both overcrowded and crumbling and the money is not there to expand and repair it. More than half of the population is "housing insecure" in the sense that if they lose their housing, for any reason, they are likely to be forced to migrate or become homeless. Today's sizable homeless population, though it is impressive, is tiny compared to what is in the pipeline. 

This is an emergency. The vague idea that the poor can go live in a rust belt suburb or sleepy desert town has no footing against the scope of the problem now confronting society. 

You are living in the next Great Depression, even though for various technical reasons this is hidden in such statistics as headline GDP. 

My interlocutor, a well intended Berkeleyan wrote: "I am not interested in spending more public money mistaking people's wants for needs. " 

Nobody like a moocher but don't worry, the public revenue is not enough to solve any of these problems. 

In the 1930s, deficit spending by the federal government at an enormous scale was able to raise aggregate demand enough to expand output. As it turns out, the only project of that scale the capitalists could agree upon was the project of World War II. (After all, while the allied nations languished during the depression, the Germans had achieved full employment quite swiftly by deficit spending to build a Wehrmacht.) 

After the war, first at Bretton Woods and then again during the Nixon Shock, the Keynesian system of boosting aggregate demand was enshrined internationally, with the U.S. playing the role of the principle debtor. The catch is that, as Keynes himself wrote, is that the key to this system is that its long term impact is to keep nominal wages the same or growing, but to steadily erode real wages. In that way, the steady improvements to productivity could be offset by driving down the real price of labor. 

Eventually, as even Keynes knew, such a system must drive wages below what it costs workers to live. Looking at his charts and tables, Keynes forecast that this point would be reached by around today. And here we are. (He left instructions which, interestingly, agree with Marx's: Reduce the length of the work week until either full employment is achieved or capitalism has given way to production for use rather than profit.) 

Here is the point: if you look honestly and fully at the economic developments since the 1930s until today, it is absolutely impossible to reduce economic inequality and poverty to questions of relative merit or virtue. Neither can the problems be explained so simply as the result of greed by this or that seller of goods or services. To take either position to engage in some kind of head-in-the-sand denialism.