Corporations Are People, Too

S3: What would Stephanie Kelton say? Just wing it. We don’t know what kind of productivity gains we would see from the spending piece. Right. Like, it may turn out not to be as costly. It might create more value in the economy. Right. I say we wing it. We don’t have to worry so much about paying for it. See what happens.

S1: Yinka, do you believe in pay fors?

S2: This seems to be the new rules now, right? Just like millions of the winget, you just get out there, print the money and build the stuff, print the money, build the stuff, give the people jobs.

S1: So what Stephanie would say is, if it works, if this does create a big boom in consumption and the economy starts looking like it’s overheating, then the right thing to do is increase taxes. I in principle agree with her, but in practice, I think it is easier to increase taxes if they’re being pushed forward as a pay for for an infrastructure bill than if they are being pushed forward as a sort of way of fiscally cooling down the economy, because I don’t think people are going to really buy that. So, like, if you’re going to increase taxes, I think now is the time to do it rather than at some hypothetical point in the future when inflation starts picking up.

S2: What do you mean by increasing taxes in the sense you are you talking about the capital gains tax increases or are you talking about just I’m going to open my paycheck and see an extra point or two on my income tax or how are you thinking about that?

S1: Well, I mean, that’s the other thing is that if you increase taxes to pay for right now, then you would do things like capital gains. If you increase taxes later as a way of reducing inflationary pressures, then increasing capital gains tax doesn’t help as much. Right. The way to decrease inflationary pressures, if you want to hit precisely what you’re talking about is income taxes.

S2: Yeah, income taxes are always going to be a very tough sell in this country, but tough sell everywhere. But we’ve literally had several generations of Americans now who have never really had significant tax increase other than local taxes. Right. In terms of federal taxes, so that it will be very difficult to push through politically. And, you know, Republicans will have a field day.

S3: Felix, are you saying that the pay for, that the Biden administration should be doing more tax increases, more stuff more broadly,

S1: Yeah, I think now is actually a good time to do things in the tax code that you kind of want to do. So, for instance, you have broad desire to equalize capital gains taxes with income taxes then. Now it’s a really smart time to do that and to sell it as part of an infrastructure pay for rather than saying we’re already doing a lot of tax cuts like tax hikes, we should probably hold off a bit on doing too many at once.

S3: Yeah, especially as the stock market is booming. That’s a great time to be like. Give us more of that money in taxes, please. Right now you’re making tons like it’d be harder in a different kind of market climate. So I, I agree with you. More taxes. Let’s do it.

S1: So talking about economic booms, we have what a lot of my peers are calling a housing bubble. I have millennial friends who are off buying houses and they are coming back with terrifying reports of bidding wars and escalation clauses and all of these terrifying things. And they find it very hard to buy a house. I just saw a statistic from Redfin saying that roughly 50 percent of all houses put on the market are sold within one week. We have prices have gone up by almost 18 percent over the past year. We have prices in places like Austin, Texas, are up 40 percent over the past year. We have just a massive shortage of housing in this country. This is the main thing that seems to be driving it. We are at all time lows in terms of housing inventory for sale. It’s never been this low and it’s down more than 50 percent from last year, the amount of housing sales. So, Emily, this is a problem. Would you agree? And if it is a problem, how do we fix it?

S3: It is a problem, the housing boom right now is very uneven in that it’s mostly rich people and high income people who are doing the buying because of the low inventory, like you said, and because requirements for mortgages, you have to have good credit, unlike in the last the last time we had a boom. So that’s bad. And people not being able to buy houses is bad.

S1: How do I mean, wait a sec, I want to push back on you there a bit. I don’t think it’s bad that you need to have good credit to buy a house. Oh, yeah. Yeah. You know, we learned last time, all right, mortgages are really not a good thing. And in principle, I’m in favour of anything which reduces homeownership. I think homeownership is too high in this country. I think it is hurtful in terms of labor mobility. I am very excited, actually, about one of the other things that is driving up prices, which is big corporations like BlackRock just buying up millions of houses and turning them into rental properties because renting in good neighborhoods is something which never used to be very easy or even possible. That used to be that if you wanted to send your kids to a good school, you wanted to live in a certain neighborhood. All of the houses in that neighborhood were owner occupied. And so you basically needed to buy there. And those houses were restricted to the kind of people who can afford to buy. Now we have a situation where rents are rising much less quickly than prices. Rents are going up modestly, maybe four percent. They were basically flat through the pandemic. And so, you know, housing in good neighborhoods, as long as you have the income is now accessible to more people. And I believe in like opening up the universe of rental properties, but Emily’s making faces at me, 

S2: Emily’s face is  turning this stone (laughter).... I

S3: I’m just thinking about Bloomberg BusinessWeek just had a whole series about how the tax code is inequitable and racist, particularly when it comes to owning homes. Like we all know that white homeownership rates are much higher than black homeownership rates. And behind that, for other reasons you probably are aware of, is this very inequitable property tax system where the lowest priced homes have the highest tax rates, for reasons I don’t think I should explain, because I’m already feeling like I’m down a hole. But when you say that investors are buying homes and that lets people rent, I thought immediately of the series because it features this woman, a homeowner who owned her own home in the Detroit area and was so happy and proud of owning this home. And she’s raising a family there. And that is a very important component of homeownership that I don’t think you get with renting and fell behind on her property taxes, which were inflated because of all this inequity in the way everything is structured. And now some, like faceless corporation, bought the house because she was foreclosed on for tax reasons and now she is renting the house instead of owning it. And every month she will drive to the landlord’s office and pay because she’s so worried they won’t give her a lease on the home, even a rental lease. So she’s months, a month, and she is so embarrassed about this, she hasn’t told her own children that she lost the house like her daughter saw online, that the house was sold. And she was like, well, that’s crazy. We still live here like just like, ah. So when you say that more people are renting homes in good neighborhoods instead of owning, I worry that stuff like this is happening, but maybe you have more evidence to show it’s it’s good renting instead of this what I would call technically bad renting.

S1: Well, yeah, as I say, I’m talking about empty homes that are being sold on the open market are being bought up by investors. You know, I’m not talking about foreclosures here. In fact, foreclosures are pretty much at an all time low right now. And one hundred percent, like, you know, stories of foreclosures are nearly always bad. And if they’re caused by property taxes, that can be bad. And I totally agree that particular situation that you’re talking about is a bad one. And all things being equal, especially if your rent is not lower than your mortgage, was that you were better off with the mortgage. You know, all of that I agree with. I just think that. You can bring up a family in a good home in a rental like this is normal in Germany, you know? Why can’t we do that in America? Yinka?

S2: I think it’s a cultural thing. I was thinking I knew you were thinking about Germany, as, you know, that premise where you know and whenever you think about sensible things in an advanced economies, you always look to Germany. But I don’t know. I think it’s such a deep thing in American culture to own homes. And you’re right, and I don’t think everyone should feel the need to own a home. I think that’s I think that’s what where the pressure is. Right. It’s this it’s such a deep thing in culture that even people who perhaps would be just better off renting feel the pressure to buy.

S1: And that, I think, is exactly why the housing boom has this feeling of despair and pessimism to it. In a homeownership economy where you have 63 percent or whatever it is of the homes in America, five percent. Sixty five percent of people are homeowners. You would think that a housing boom would make people happy, right? Sixty five percent of the people are homeowners, you would think. Sixty five percent of people are seeing their houses go up in value. And look, I’m rich. This is great. And, you know, you kind of saw that in 2005, 2006. You’re not seeing that now. But I think you’re absolutely right is that a lot of it is just people who have this emotional need to buy a place and they’re not happy so long as they’re renting and they see the price of buying going up and they see the amount of money they’re going to have to spend on property taxes and mortgage payments, so much higher than the amount of money they are currently spending on rent. And they think that’s normal and they just sort of grit their teeth and say, well, I have to pay whatever I need to pay. And they wind up, you know, massively increasing the housing costs, massively decreasing their disposable income, all for the sake of this kind of American dream of homeownership.

S2: And I think that’s a broken system. But don’t forget, the American owning owning a home is built into the system. It’s built into your your credit score is built into the way you are, not just the way you’re viewed in society, but the actual financial system rewards you or penalizes you, partly based on whether you own a home, you know. So if you’re growing up and you see that that box every on every form you filled you and your home, do you you know, you’re always going to feel you should this is the thing you’re supposed to do to be a complete grown up, to be a complete adult. The United States.

S3: One thing you’re overlooking, I agree. It’s definitely a bedrock kind of principle and very emotional thing to feel like you’re a homeowner. But in the United States, when you talk about home ownership, the key thing to think about and not overlook is education in the U.S. If you want to raise a family and you want to send your kids to a good school, your best bet is to buy a home in a place with really high property taxes because the school system is going to be better then in a place where you’re renting. There’s just no question about that.

S1: Why can’t you rent in a place with really high property taxes?

S3: Because there are owners, like you said before, there just aren’t as many rentals. The inventory isn’t there, like where I am in Westchester. There’s if you want to rent, there’s like a few options, but mostly the inventory is is for buying. And so I think a lot of people, parents would be happy to rent an apartment or a house or whatever, but you ought to send your kids to school and it’s still cheaper to pay the property tax than it is to pay private school tuition.

S1: You have 100 percent come around to what I said initially, which is what we need is more rental inventory in good school districts, basically.

S3: Yeah, I think that’s great. I don’t think that’s happening.

S1: I think that is happening. I think there was a big Wall Street Journal article about how one in five houses these days is being bought by permanent capital and financial investors who are turning around and renting those houses. And they’re doing that in all neighborhoods, not just quote unquote, rental neighborhoods.

S3: OK, if you say so, Felix. But I don’t I don’t see it. I mean, I remember after the housing bust, there were all these stories about private VXI and private equity buying up homes and renting them out. But I don’t think it’s made a huge difference. People still want to buy houses to live in the good school districts and they don’t want to. And I just I can’t imagine it’s such a sizable portion of the inventory. Is is rentals owned by investors?

S2: Is there any Airbnb people with second homes? Every time I go, is there an Airbnb boom with second homes? Is that every time I go on Airbnb, I’m like, oh, how there’s so many homes for it.

S1: So this is part of the housing boom is well, OK. As an English person, I can tell you that one of the peculiarly English parts of the English housing boom is this thing called buy to let where people buy homes in order to rent them out. And instead of large, you know, blakroc permanent camp. All investors buying homes to rent them out, you get individuals buying homes to rent them out and that I am not a fan of at all because it creates distortions in the housing market. And it also, like individuals basically shouldn’t be landlords, in my view. They don’t that we saw during the pandemic that you had a bunch of individual landlords who just literally couldn’t afford to allow their renters rent relief when they lost their job, when in this time last year and because the landlord needed that money maybe to pay the mortgage. And so if you’re that cash constrained, if you don’t have the massive cash flows and the big balance sheets that the big Black Rocks of the world have, then I don’t think you should be a landlord. And I think the idea of people like doing this hustle culture, if I’m going to make I’m going to live on the income from Airbnb and being out my properties and use the Airbnb income to pay the mortgage. Yeah, that kind of gives me out a bit. And I’m not a big fan of that. But I do think that the move towards work from home that has created, number one, a desire for more space in homes. The number two, feeling that you can live in a much wider range of places. And yet people are like, oh, you know, maybe we should get a second home and it won’t cost quite as much as we thought it would because we can Airbnb it out for a lot of years that we’re not living there. And it’s an interesting way that the market has evolved.

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