Speculation and Affordable Housing
a matter too human to be left to the indifference of ‘the market’
[Spellchecker is MIA, so typos of that kind might be present.]
I contend that there are two kinds of economic speculation: productive and unproductive. The former refers to investments in enterprises producing goods/services: starting or expanding them. “Unproductive” speculation is buying to re-sell for a profit: no value is added; profit is secured simply becasue the price of that which was purchased has risen (or, in the case of ‘shorting’ stocks, fallen). It is fair to ask where speculation in residential real estate falls in that diochotomy.
If real estate of any kind is bought to be resold for a profit, then that would be a form of unproductive speculation. Obviously, if the real estate in question is improved before being re-sold that is not unproductive speculation. Just as obviously, that applies to residential real estate.
The ol’ bottom line, though, is that questions concerning speculation in residential real estate cannot be limited to being a matter of making money, and nothing else. Providing housing is a serivce of a kind. On the other hand, housing is a fundamental need of human beings. Any society that is indifferent to whether its members have roofs over their heads cannot really be called “human.” Even bondage slaves have always been housed by those who claimed ownership of them. Housing is inherently a moral issue.
Regarding residential real estate, one problem is that to purchase real estate of any kind is to add to the demand for it. Absent a concommitant increase in supply, an increase in demand generates an increase in price. The nature of housing is that adding to supply takes months at the least, whereas demand can increase from one day to the next. A rise in prices attracts speculators, leading in residential real estate to increasing prices that will always outrun supply. Those increasing prices drive rents upward along with the prices of single-family dwellings. The result is a general increase in the price of housing of all kinds that leaves increasing numbers of citizens unable to afford a place to live.
Sure, occasional ‘market corrections’ can occur. Speculators can decide to ‘take profits’ (usually out of fear that others will beat them to the punch). The result is a cascade of properties coming onto the market, leading to a sharp drop in prices. In today’s economy, though, with the amount of money available for speculation of all kinds, in all places, such episodes are short-lived. The upward march of the price of housing quickly resumes.
It is clear that speculation in residential real estate drives up the price of housing. It is clear that housing is a moral issue. It is one place where ‘Rights’ to ‘liberty’ and ‘happiness’ cannot be allowed to take precedence over the basic needs of human beings. For any human being, there cannot be any question about that.
It cannot be that difficult to control speculation in residential real estate, once the rationale for controlling it is perfectly clear. It could be done ex ante, i.e., circumscribing the conditions for speculation, or it could be done ex post, as in taxing the profits from such speculation — or both.
Personally, I favor using taxation to limit the rate of profit from residential real estate, pegged to a benchmark rate of interest, such as the rate on a ten-year bond of the central government. I don’t see how ‘free marketeers’ could object to that. After all, one of the defining characterisitcs of a ‘pure’ free-market economy would be a uniform rate of profit that would be equal to the rate of return on a perfectly secure note. Allowing a slight multiple of the return on a ten-year bond of the central government, as a proxy for such a security, would be comparatively generous. If not that, some other benchmark to which to peg an acceptable rate of profit could surely be found. The security of such speculation would make up for its lack of appeal in terms of possible returns.