Housing affordability – the ratio of income needed for rent or a mortgage – has never been worse, in Australia and many other wealthy countries. This is a natural result of inequality and stored wealth not being taxed sufficiently. The rich are wisely putting their money into income-generating assets and we know that housing is safe “investment”.

The problem can be fixed by the government, by building houses (or rezoning land) to meet demand, and possibly reducing immigration, because an extra 500,000 people in one year can only make things worse.

Possibly, the government(s) fear oversupply, just how their magic unemployment number is 5% because, heaven-forbid, we don’t want employers to be unable to find workers. Not one, not ever, because business is more important than people.

The Brookings Institution makes some valid points about supply, some of which do not apply to Australia – we do not have a Detroit where every second house is vacant…

• Housing is long-term. Unwanted houses don’t simply go away, they last for many, many decades
• Housing is highly localised. People like to live near work, so job opportunities, or the lack of, are a big factor. Once a factory shuts down, there is a flow-on effect for local business.
• Governments are in control, of permits and zoning and taxes and incentives. So pure capitalism is not able to fix it, or make it worse.

Measuring actual demand is hard. There are people who want to live somewhere better (like grown kids moving out of home, or ending homelessness), but many of them cannot afford to. The only real way to know when there is too much housing is when affordability comes down to where it was in days of less economic inequality, and there are too many vacant properties.

By the time we notice oversupply, several years worth of extra new housing builds are probably still to arrive. You cannot get your money back on a half-finished building…

One Australian expert describes the type of economic doom that the rich and conservative politicians will cite as reasons for never having too much supply:

While under supply puts upwards pressure on prices, oversupply, although rarer is disastrous. The capital losses can be huge, firms bankrupt, jobs are lost, careers disrupted, tax receipts plummet, the general economy falters. 

I would suggest that none of those will occur when the oversupply is moderate. What he is talking about is that oversupply will mean property prices drop, and those who made massive gains in the property market will need to cope with lower returns. Those who stupidly became over-leveraged will learn a lesson.

None of the experts I found online factored in the following that will arise from more affordable housing coming from increased supply:

• Young people will leave home earlier, because they can afford to sooner
• People in shared housing, the majority who would rather have their own place, will be able to
• Any public or private initiatives to end homelessness will be able to help more people
• Tree-changing or sea-changing will become more affordable, helping increase availability in cities, and reinvigorating the countryside
• A flat market will entice more elderly people to downsize instead of clinging onto their mansions to get capital-gains-tax free profits
• We will see an end to cheaply-made, miniature apartments in CBD skyscrapers, that councils are happy to have because of increased rates and population.

Hopefully some of the very rich people who have used extremely generous tax breaks for homes to get richer, will now consider actual investments instead.

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Normally we talk about the top 1% or top 0.1% when talking about such things, but New York is next level. The top 20% of households earn a whopping $545,549 per year. Meanwhile the bottom 20% of households (some of which will have multiple adults) is a measly $10,259. That is according to 2022 census data, a year in which the problems of the pandemic should mostly be behind us.

Combine that with the famously high costs of housing and it is not surprising that some people with full-time jobs are homeless.

The post-COVID recovery is going great for some people, but not all. The NYT reports:

Unemployment is down, but remains sharply higher for Black and Hispanic New Yorkers. The mixed signals highlight a widening chasm: The city is recovering, but many of its residents are not.

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as of 2010, 388 individuals possessed as much household wealth as the lower half of the world’s population combined—about 3.5 billion people

This explainer is far easier to follow, and concludes that, according to the math… if you start with 1,000 people with $1000 each and play 10,000 rounds of coin-toss bets, where your stake is 20% of net your worth… someone ends up with everything ($96,274), even though everyone wins half of the coin-toss contests.

It is a mathematical model, not accounting for how society actually works. But it proves that having a bit more money than someone else at the start leads to exaggerated outcomes over time.

Long story short, if you have more in the beginning, you can gamble more and not be wiped out by bad bets as much as someone who starts out with less.

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See this headline from a few days ago:

Price of a pint of of beer in London surging towards £14 as inflation rises, according to analysis

For comparison, Australia also has pints and they cost around $12-$14 in inner-city bars. That’s £7 – £8. Or in USD that the Londoners are paying $16.50.

One of the reasons why the UK is the runner-up in western inequality is land. The rich have been around longer, and over time they have grabbed more and more land, and the UK doesn’t have that much of it. Any Brit can tell you how much property prices have risen in London.

Inequality means that the rich all try to own land (to store their wealth) and that pushes prices up. Expensive property means expensive rent. Which a significant cost factor for a pub in the London CBD. Which makes the experience of drinking in a bar harder to achieve for the average person.

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It will work itself out in the long-term, because tourism needs workers, and the workers need local shops and services. In the long-term, being a tourist in those places will cost more, so that workers can be paid more, so they can afford rent. Otherwise, tourism cannot survive without the workers.

In the short-term it is a problem, and some municipalities are setting limits on short-term accomodation and/or taxes on it.

AirBnb is being blamed, but it has merely been the enabler. The real issue is inequality.

More people have more money than in any time in the last century, and the relative income of low-paid workers is declining. The rich are spending more on travel, which also means they can afford to pay more for accomodation that previously. That means a property owner can now get more from short-term renting to rich travellers – even with less than 50$% occupancy – than from long-term locals.

Inequality is creating massive inefficiencies. Short-term accomodation can be empty most of the time and still profitable. Rich people have holiday homes that they barely use. And the relative cost of renting a home keeps rising for poor people, because of a supply shortage.

Inequality is to blame, not AirBnb.

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While it is only one part of the problem, the frequent mentions make sense because it is a standard economist way of describing how some people own things and earn an income from them, without actually putting any effort in. Getting richer from being rich.

While that is the current, real world equality issue, it rarely gets looked at in terms of the roots.

Philosophically nobody should own land – we all should have equal rights and access to it.

While in modern times a piece of paper says someone owns land, and despite it being legal and documented, if you go back far enough, that ownership was never legitimate.

Every colonised country, the land is stolen. At the time of colonisation, few if any countries had a concept of individual land ownership. Not only was their country stolen from them by force, an alien concept of an individual owning land was introduced.

In Europe etc, I doubt there is a single plot of land that was democratically allocated and has ever since been passed on by sale, gift or inheritance without dispute. All land “ownership” involves theft and wrongdoing at some stage, historically, and therefore all ownership of land is illegitimate.

Rentiers get richer from owning land they never had a right to, if you look back long enough. That makes things doubly wrong.

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Meanwhile:

In 2002, 68.1 per cent of people owned a home. But by 2018 this had fallen to 63.9 per cent…

Investment property debt was carried by 7.7 per cent of households in 2002, but this had risen to 11 per cent by 2018.

This is what the numbers are saying – people with high incomes had increased earnings, while ordinary people have no growth. And that increased wealth is being put into investment properties, while increasingly ordinary people are finding home ownership too expensive – their wages are stagnant but property prices continue to rise.

Source: https://thenewdaily.com.au/finance/finance-news/2020/11/19/hilda-report-inequality-rises/

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We can extrapolate meaning from that – higher paid jobs have less need to be physically present (on average), which suggests that higher paid jobs are “less real”.

A real job, one that directly benefits society, is one that makes things. And despite the digital age we live in, most things we buy are still physical, requiring people to physically make and store and transport them.

A bullshit job, one that shifts money around but doesn’t generate anything new or of tangible value, can usually be done from home.

Bullshit jobs, those that society needs the least, pay the most. That is upside down.

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Musk is an extreme case, because most people would say his deserves it. That he is the driving force of the business.

Stock options are very different for, say, the CEO of a bank. In an industry that is meant to be prudent, rewarding the CEO based on any KPI seems odd. They should simply be paid the appropriate amount for the job they do.

There are two key problems with stock options:

• In many parts of the world, you don’t pay tax on the options until you vest them, or you don’t pay tax until you eventually sell the shares
• Rewarding just the CEO is disrespectful to the employees that make the enterprise tick

The solutions are obvious.

1. End stock options. They exist to disguise income and avoid tax
2. Reward CEO performance with salary increases, like regular workers, via an annual review

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The Christian tradition has never recognized the right to private property as absolute or inviolable, and has stressed the social purpose of all forms of private property. Saint John Paul II forcefully reaffirmed this teaching, stating that “God gave the earth to the whole human race for the sustenance of all its members, without excluding or favouring anyone”.[72] These are strong words. He noted that “a type of development which did not respect and promote human rights – personal and social, economic and political, including the rights of nations and of peoples – would not be really worthy of man”.[73] He clearly explained that “the Church does indeed defend the legitimate right to private property, but she also teaches no less clearly that there is always a social mortgage on all private property, in order that goods may serve the general purpose that God gave them”.[74] Consequently, he maintained, “it is not in accord with God’s plan that this gift be used in such a way that its benefits favour only a few”.[75] This calls into serious question the unjust habits of a part of humanity.[76]

This doesn’t delegitimise the obscene wealth of the Catholic church, as they would see all they have and do as being for the social good.

The document provides some ammunition against any of the 1% who declare themselves to be Catholic. With footnotes. Hard to argue against the Pope if your a Catholic…

…pointed out by the bishops of Paraguay: “Every campesino has a natural right to possess a reasonable allotment of land where he can establish his home, work for subsistence of his family and a secure life. This right must be guaranteed so that its exercise is not illusory but real. That means that apart from the ownership of property, rural people must have access to means of technical education, credit, insurance, and markets”.[77]

I was pleased to see, much later in the document, Pope Francis was willing to not only rip into the banking system, but to call for a new way of running economies. This is bold, provocative stuff!

These excerpts are from paragraph 189 onwards. Read the full chapter for context.

Saving banks at any cost, making the public pay the price, foregoing a firm commitment to reviewing and reforming the entire system, only reaffirms the absolute power of a financial system, a power which has no future and will only give rise to new crises after a slow, costly and only apparent recovery. The financial crisis of 2007-08 provided an opportunity to develop a new economy, more attentive to ethical principles, and new ways of regulating speculative financial practices and virtual wealth. But the response to the crisis did not include rethinking the outdated criteria which continue to rule the world. 

…we need to reject a magical conception of the market, which would suggest that problems can be solved simply by an increase in the profits of companies or individuals. Is it realistic to hope that those who are obsessed with maximizing profits will stop to reflect on the environmental damage which they will leave behind for future generations? 

Whenever these questions are raised, some react by accusing others of irrationally attempting to stand in the way of progress and human development. But we need to grow in the conviction that a decrease in the pace of production and consumption can at times give rise to another form of progress and development. Efforts to promote a sustainable use of natural resources are not a waste of money, but rather an investment capable of providing other economic benefits in the medium term. 

A technological and economic development which does not leave in its wake a better world and an integrally higher quality of life cannot be considered progress. Frequently, in fact, people’s quality of life actually diminishes – by the deterioration of the environment, the low quality of food or the depletion of resources – in the midst of economic growth.

Politics and the economy tend to blame each other when it comes to poverty and environmental degradation. It is to be hoped that they can acknowledge their own mistakes and find forms of interaction directed to the common good. While some are concerned only with financial gain, and others with holding on to or increasing their power, what we are left with are conflicts or spurious agreements where the last thing either party is concerned about is caring for the environment and protecting those who are most vulnerable. 

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