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.

The post The Fear of Housing Oversupply appeared first on Unism.

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.

The post NYC Inequality Widens appeared first on Unism.

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With a UBI, everybody gets the same amount of money from the government, regardless of their needs or contributions. How does that sit with a mindset we have had for decades called user pays?

The brief Wikipedia article on user pays mentions the most common example, which is petrol/gasoline tax. Ultimately it is a cop-out by governments, just like out-sourcing and privatization. If you want better roads, we will need to put up the price of gas.

That is the kind of simplistic logic that satisfies (fools) the common man. But it is very wrong. Roads and road travel are ubiquitous. While most of us drive, all of us depend on roads. Almost every person and business benefits from roads to some degree, directly and indirectly. Their usefulness is so universal that taxing fuel due to a “user pays” concept is simply wrong.

Aside from trucks – as they primarily are what causes damage. A tax on their activities is warranted.

The cost of infrastructure should be borne by all of society, and all of society should have equal access. That way of thinking is an extension of UBI, and also a part of a parallel concept known as Universal Basic Services.

With the rise of electric vehicles, governments are scrambling to keep their fuel taxes happening so that roads can be funded. In Victoria Australia, there is already a kilometre tax for electric vehicles, which is the antithesis of encouraging such vehicles. Now Texas is charging EV owners an annual fee.

I look forward to a country adopting a “roads for all” policy and getting rid of the blame-shifting, responsibility-shirking road taxes once and for all.

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The #1 racial problem these days is inequality. Outright racism has long been on the decline, but subconscious or unintentional racism still occurs. So while physical harm and outright exclusion are relatively rare this century, the inability to access opportunities is still a problem. That lack of access applies to people of some colors, and many people who lack wealth.

Conceivably, most US colleges are color-blind when deciding admissions if the students came from good schools, and ticked all the boxes of “good”. Which means that well-off students with good grades shouldn’t have a problem getting into schools.

Here’s the plan:

• Divide the average taxable earnings into 10 groups, each covering 10% of the adult population
• Require the latest tax return of your parents to be part of your application
• Divide the applications into their wealth tier
• Decide who gets in by the normal criteria, until each tier is full with 10% of the students being admitted

Yes, some people will cheat… but with tiers it is quite hard. They won’t know how competitive each tier will be. And they will be fighting to get into a school that is suddenly not so exclusive.

And the other obvious problem is how will the poor kids afford to go to a good college? Not so easy when a much bigger proportion of them need a scholarship. Possibly, fees are tied to wealth to some degree. Ideally, the government funds higher education.

But the end result would be great. Poor people are more likely to not be white, so this replaces race-based affirmative admission policies in a round-about way, and for the GOP to stop this, they’ll need to declare themselves to be pro-rich.

The post Affirmative Action Admissions: Tiered by Wealth appeared first on Unism.

In my book The Rich Cheat, I lament all the ways the rich get richer, while noting how little is done about it. Because inequality is on the rise, clearly existing measures are inadequate. Even so, there are existing measures, and it would be fair to point them out.

The net investment income tax, or NIIT for short, was introduced during the Obama years to pay for health care. It’s a 3.8% surtax on the income of Americans from sources like interest, dividends and capital gains. But it focuses on the rich and only applies if adjusted gross income, or AGI, is above $200,000 for most single people or $250,000 for married couples.

Importantly, it has not yet been adjusted for inflation, meaning more and more people are now earning above the threshold. And because interest rates are on the rise, so is the income from the tax, rising from $16 billion in 2013 to over $60 billion in 2021.

The WSJ makes a great example of how it can be seen to a “small” tax:

“Maybe $114 is a small price to pay when your interest on a “safe” investment of $100,000 rises from $1,000 to $4,000, but it’s there. I joke to clients that the NIIT is the ‘you-make-a-lot-of-money tax,’ ” she says. 

And therein lies the point. Inequality will only decrease when taxes on the rich hurt. When your wealth grows by 10%, the takes reduces that down to 9.6%. That’s still your wealth growing without lifting a finger.

The post A Great Example of Wealth Tax (USA) appeared first on Unism.

The idea is that a new business that needs start-up capital issues bonds. Like other bonds, they have an expiry date an an interest rate, or the like.

But you have no other rights. Even if your bonds fund 60% of the business, you get no say in how it is run. You don’t get discounts, priorities or rewards.

If the business fails, you become a debtor ranked according to the terms, and typically you only get something after those who supplied goods and services are paid.

The bonds can be traded.

It rolls together early-bird funding, angel investing, crowd-funding and an IPO into one, for the ease and convenience to get a small venture running.

Without the upside angel investors can usually hope for – exponential returns – the bond must return a rate of interest unobtainable from safe investments. Say 30% after 2 years.

The business might have some reverse re-investment clause. Like, at the 2-year mark, bond holders can extended the end date, for a higher total return, but lower relative return.

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We all know that big corporations can unfairly fight off legal challenges from smaller entities by via the well-known phrase “dragging it through the courts”. Especially so in the US where there seem to be many, many layers – that end up at the Supreme Court. But to get there, from a lowly first court case can take a decade and millions spent by the little party.

So, consequently, most aggrievances against big corp are never heard. That of course is not fair.

So whenever a civil case between an entity worth over $x and another worth less than $x – we could start with above a billion versus below a million, they need to go to a special, new court designed just for that. It is nothing other that a shortcut to the Supreme Court, to save the torture of through the courts. But it can cover all the other tactics that the rich utilise that I am not aware of.

The rich would struggle to argue against such an efficient system.

The post A Court Just For Billionaires and Big Corp vs The Little Guy appeared first on Unism.

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.

The post Inequality is Inevitable? Yard-Sale Theory appeared first on Unism.

Debt has been a very useful tool for growing the economy and society, and has been a fundamental aspect of capitalism. The downside of debt it is that it increases inequality, and that needs to stop. It is also crippling to many people in pandemics and recessions.

I have written a lot about future versions of capitalism that can free us of debt, but they don’t help existing debt. How can we get rid of it?

In historical times there was the concept of debt jubilees. In the Bible (Deuteronomy) it says that every 7 years debts should be forgiven. And in modern times we know that many impoverished countries have had their debt forgiven. Bankruptcies are bad for the entire economy and should be avoided.

Joe Biden has to some degree been forgiving student debt, and it has been suggested that he do the same with medical debts. In both cases the debts are excessively burdensome for many people, and if the debts are forgiven, few would accuse those people of gaining something unfairly / ripping off the system.

Biden can forgive such debts because he can just print the money to do so. Via modern monetary theory, any country that issues its own currency and do that, as long as they don’t put so much extra cash into the economy that inflation occurs. We saw that with the COVID pandemic…

So for many types of debt, government intervention works beautifully. Effectively the burden of forgiveness is spread across all taxpayers (people and corporations) fairly evenly. And when we are talking about capitalism failing 30 years from now, the forgiveness can be done slowly.

Debt is a type of investment, but not the only one. When debt is forgiven via the government, the debt holders receive cash to replace that debt. What they do with that cash is up to them, but typically it needs to be invested.

Removing debt increases the capital value of where the debt is removed from. If your mortgage is forgiven, then the net worth of your property is a lot more. Here’s a simplistic scenario showing how debt can be replaced with ownership.

Ron owns a house worth $100K, has a mortgage of $20K – his equity is $80K. The government forgives all mortgages – people will fully own their homes and banks get paid off with government money. Suddenly Ron’s home equity rises from $80K to $100K, and the bank now has $20K in cash instead of the $20K mortgage.

Ron would like some cash, so he sells 20% of his home to the bank for $20K. They are essentially back to square one except that Ron now has $20K in his pocket, from the government. And the bank has partial ownership of a home, and no interest payments.

Debt is lucrative, essentially unfair, and a driver of inequality. Those who used to own debts will no longer reap the same rewards. That has to be the way, post-capitalism. But they can still be rewarded, just not as as well as before.

For residential property, it is a good result. The bank still profits from the rise in property prices. If the house is rented out, the bank gets their share of that as well. But as long as the property is owner-occupied, bank profits are lower. That is good, as it will send us on a path towards more home ownership and less rentals – good for reducing inequality.

Come 2050 and beyond, when globally the population will start shrinking, there will be less demand for homes. The current system (get a mortgage) will no longer be viable, because the equity in houses is (on average) going to reduce year by year. No bank will lend if that is going to happen – they would never get their money back.

If we have ended mortgage debt by then, it won’t be a problem. People won’t lose their homes and become bankrupt. Banks won’t suffer losses. But we need to start the transition today, while the inevitable consequences for banks are less obvious. Their 20% share in homes will be OK (not as good as now) for homes that are still occupied post-2050. For those that are abandoned, that is a loss for banks.

This is how we could achieve this slowly. As with many ideas like this that I have had, we need to use stealth. We cannot just announce that mortgages are going to end.

Many advanced economies have a perennial housing crisis, and every new government promises to fix it. Typically that is incentivising new home building, or building social housing. I suggest that government very slowly starts buying mortgages from people who are suffering financially, in exchange for equity. It is the same scenario as above, but government owns 20% of Ron’s home, not the bank.

Ron still has 80% equity in his home, but the burden of debt is gone. If he loses his job, the threat of foreclosure is gone. And we will be financially better off because he no longer has to pay mortgage interest. We would of course provide a mechanism by which Ron could buy that 20% from the government any time in the future, if he had the cash.

The criteria could be a based on a ratio of income and mortgage amount. If your mortgage is more than 10x your annual income, for example, you can ask the government to buy you out. This can’t be gamed, because you don’t gain. You’ve simply stopped the mortgage process at a certain point of time, which means your equity gets stuck where it is.

The criteria would be based on say the worst 1% of income/equity ratios. So perhaps only 0.1% of homes are involved in any year. And then, every so often, the criteria loosens a little. And decades from now, a big portion of mortgages have been removed from the system.

Stealth.

It can be sold as a way of making sure that people with tragic circumstances – job loss or an expensive health crisis – do not lose their homes. It should be an easy thing to sell to the public.

Next up: the sharemarket.

NOTE, not for the purposes above, but the Victorian government in Australia has a shared equity scheme, where they pay for 25% of your home at the time of purchase, and they own 25%. With time you are meant to buy them out.

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