Sunday, January 20, 2019

Taxing Tech for Affordable Housing

A recent opinion piece in the New York Times recommends taxing tech companies to fund affordable housing. It claims that, when tech employees drive up housing prices and displace people from their homes, it is an external cost similar to pollution, which economic theory says we should tax.

The comparison is not apt.  Pollution is pure external cost with no external benefit, so we tax pollution in order to reduce pollution. Well paying tech jobs have external costs, such as displacement of people who cannot afford higher rents. but they also have external benefits: if people have well paying jobs, they are less likely to commit crimes, and their children are more likely to do well in school, and of course, the well paying jobs also generate more tax revenues, which can be used to pay for a wide variety of social benefits.

No one says that a tax on well paying jobs should have the goal of reducing the number of well paying jobs, as a tax on pollution has the goal of reducing pollution - showing that we believe the benefits of having those well paying jobs outweigh their costs.

There are two reasons that tech jobs moving into an area leaves many people unable to afford housing: high levels of inequality and restrictions on building enough housing. In the short run, there is some value to building affordable housing to help these people, but in the long run, we need to deal with these two underlying causes.


In the 1950s and 1960s, as the economy grew, Americans' incomes went up at about the same rate for all economic groups; everyone got a share of the nation's prosperity. Since the 1970s, incomes have gone up very rapidly for those with the highest incomes, and slowly for those with moderate incomes. Since 2000, the rich have continued to get richer while median income has not gone up at all.  In the 1960s, American had about as much economic inequality as other developed nations, but now the United States has the worst inequality of any developed nation.

There are many possible ways to reduce inequality, such as free tuition in public colleges, which was common in the 1960s but is rare or unheard of today, in order to give everyone an opportunity to join the middle class.

But the simplest method, and the most effective in the short term is to use the tax system to reduce inequality: raise taxes on the rich, reduce taxes for the middle class, in increase the Earned Income Tax Credit for those with low and moderate incomes.

In the 1950s, when prosperity was widespread, the top marginal income tax rate was 92%. And President Eisenhower, a Republican, was the one who signed the law raising taxes to that level.

If we use the tax system to reduce inequality, then everyone will benefit from those high paying tech jobs. The techies will benefit from the high paycheck, though they will have to pay more of it in taxes, and the teachers, waiters, and other people who provide services for the techies can benefit from higher Earned Income Tax Credits.

Restrictions on Developing Housing

There was a massive housing boom after World War II, with most of the housing built in the new suburbs that were opened for development by new freeways. In the 1950s alone, the number of new housing units built was equal to 63% of all the housing units that existed in the US before that time.

The laws of supply and demand worked as expected, and all that new supply of housing drove down the cost of housing. As the middle class moved to the new suburbs, the price of housing went down in real terms in older urban neighborhoods.  In a few cases, most famously in the South Bronx, the price of housing went down so far that whole neighborhoods were abandoned because the low rents could not cover the cost of taxes and maintenance.

There was also massive construction of federally funded public housing at the time, but the amount of affordable housing provided in this way was much smaller than the amount that appeared in the cities as a side effect of constructing vast amounts of private housing in the suburbs. And much of the public housing was a failure in social terms: crime rater were higher in the housing projects than in surrounding neighborhoods, and hundreds of public housing projects were demolished under the federal HOPE VI program because of their high crime rates.

Today, there is much less housing being built. Because of environmental concerns, there are laws restricting the development of new suburbs; we now know that the suburban housing boom and the new freeways that made it possible created major environmental problems: sprawl destroyed open space, created automobile-dependency, and contributed to global warming. And there are also zoning laws - supported by NIMBY pressure - restricting the development of housing in existing neighborhoods.

But we can promote a housing boom that is environmentally sustainable by building more public transportation and by passing state laws that override local NIMBY opposition and allow development of dense walkable neighborhoods around the stations. Most  important, we can streamline approval of urban housing by adopting Form-Based Codes to regulate development, instead of conventional zoning, with development by right for all proposals that follow the code.

Dealing with the Real Problems

There is a place for public housing for marginal groups that are not able to succeed in the mainstream economy.  But when people with full-time jobs - including teachers and other professionals - cannot afford housing, that is a sign of bigger problems in the economy as a whole. We should deal with these problems by reducing inequality and increasing the overall supply of housing so that anyone who works full time can afford market rate housing, rather than forcing people with full-time jobs live in affordable housing projects.

Read the New York Times opinion piece.


Blogger Karthik said...

In 2018, Queensland’s Department of Housing and Public works signed up tens of thousands of residents and community members to its online engagement portal on housing reform to improve renting conditions in Queensland.
Affordable Housing Challenge

4:46 AM  

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