San Francisco is the latest American city to try to solve the problem of “homelessness” by throwing more and yet more taxpayer cash at it. Should we check in on how it’s going?
You may recall that I last visited the issue of homelessness in San Francisco about a year ago, October 2018, in a post titled “The Morality Of Our Progressive Elite.” At that time, the number of “homeless” in San Francisco was estimated at about 7000, but there was an initiative on the November 2018 ballot, known as Proposition C, calling for a new payroll tax on large employers in San Francisco, intended to raise some $300 million per year to solve this homelessness problem once and for all.
On October 25, 2018, one Marc Benioff, co-CEO of Salesforce, had an op-ed in the New York Times supporting Proposition C. My post noted that Benioff was only too happy to advocate that others should be forced to spend hundreds of millions on this project through a new tax, while he himself offered to put up none of his own personal fortune, estimated at $6 billion, for the purpose.
So where are we now, a year later?
I keep returning to the case of the New York City Housing Authority (NYCHA) because it is such a perfect illustration of the socialist economic model in practice. There about 170,000 NYCHA apartments, housing around 400,000 people. Most of the apartments were built from about the late 1940s to the 1970s, to be technically “owned” by the City of New York, although nobody expects any return on the investment. Maintenance and upkeep are in the hands of a unionized bureaucracy, headed by a Commissioner reporting to the Mayor. The unionized staff gets paid for going through the motions, rather than for assuring that the residents are receiving a good-quality housing product. Nobody ever gets an extra dollar of pay for getting the buildings ready to go for the next ten years, or for the next generation.
Actually, it’s far worse than that. The commissioners turn over every few years, and their only interest is in not having the buildings fall apart on their watch. The employees have union contracts that perversely reward inefficiency. For example, NYCHA’s plumbers have negotiated themselves a deal where all shifts are Monday through Friday, 8 AM to 4:30 PM, and any work outside those hours gets paid at “overtime” rates. Clearly, the plumbers maximize their income when the plumbing is old and prone to regular breaks, requiring emergency calls during the nights and weekends when the pay is time-and-a-half or even double. Fortunately for them, the genius economic planners who put this NYCHA thing together some 40 to 70 years ago never considered the possibility that after such a period of time the buildings would need major capital upgrades. No plan was ever put in place to provide for such upgrades. As the buildings get older, the breakdowns become more frequent and worse. The living conditions get worse and worse, while the employees make more and more money.
Mostly, NYCHA has been out of the news lately. But thank the Lord for the New York Post, which will not let go. . . .Read More
A couple of weeks ago, I reported that there was “excitement in the air” here in New York. The cause of the excitement was the prospect of significantly tightened and expanded rent regulation, made possible by the ousting in the 2018 election of what long had been a narrow Republican majority in the state Senate. Now the state Senate would have a comfortable Democratic majority, joining the already-existing large Democratic majority in the state Assembly.
Being a Democratic legislator in New York means believing that preventing increases in rents makes housing “affordable,” and also has no meaningful downside consequences such as disinvestment in the regulated housing. Therefore, tight rent regulation is a key step in the march toward perfect justice and fairness in the world. Obviously then, tightening and expanding rent regulation would immediately rise to the top of the agenda in the newly constituted legislature. My previous post reported on bills on the rent regulation topic that were getting floated in May. Now, it looks like both houses of the legislature have passed a lengthy “reform,” with the title of “Housing Stability and Tenant Protection Act of 2019,” which the Governor promptly signed. Here is a link to the as-passed bill on the legislature’s website, with an indication that it is what the Governor has signed.
How bad is it? Believe it or not, it could have been even worse. But, it is plenty bad. . . .Read More
A couple of months ago I wrote about the excitement in the air in New York City as the newly elected state legislature, with large progressive Democrat majorities in both houses for the first time in many years, looked set to pass a “pied-à-terre” tax for New York City on high value condos owned by non-residents. Finally, we were going to get even with those evil out-of-town mega-billionaires for their sin of coming to our city and spending their money. The idea was that the state legislature would authorize the City to impose special real estate tax surcharges thought sufficient to raise some $650 million per year from just 5400 super-wealthy people who owned very-high-value residences. That would be some $120,000 per year from each one of them. Take that, billionaires! One guy — a hedge funder from Chicago named Ken Griffin, who had just bought an apartment on “billionaire’s row” for $263 million — was theoretically going to get socked for about $10 million per year.
And then, as quickly as it had arisen, the excitement dissipated. Somebody noticed that the high end condo market in Manhattan was already in sharp decline. This tax threatened to kill it off completely, along with the jobs of the people building and selling the apartments. Meanwhile, the tax looked to be relatively easy to evade, as by a mega-billionaire subleasing his apartment and staying in a big hotel suite. The originally-$650 billion estimated annual tax take started to drop like a stone. Today, the pied-à-terre tax idea seems to have died, although with the legislature still in session anything could happen.
But suddenly a new excitement is rising up. A key progressive agenda item, tighter and stricter rent regulation, long blocked by the formerly Republican-controlled state Senate, now looks set to sail through before the legislature winds up in June. Finally, we will be able to achieve perfect justice and fairness in rental housing prices, through the magic of government command and control. . . .Read More
In New York City we have a dizzying array of taxpayer-subsidized “affordable housing” schemes: low income public housing; mixed income public housing; “limited equity” co-ops; the so-called “Mitchell-Lama” program; 80/20 and 70/30 “inclusionary zoning” requirements; and plenty more. Something around 1 million people live in one type or another of these subsidized projects. That would be about 1 person out of eight in the City.
The whole idea with these schemes is that each resident pays substantially less than what would be the market rent for the same unit. After all, by hypothesis, we have a “crisis” of housing cost, where market rate apartments are priced too high for many people to afford. Therefore, we need politicians to provide taxpayer-financed subsidies to create a large tier of the “affordable” apartments. The actual rents for each “affordable" apartment are then determined by a political rather than a market process. In the case of the low-income projects, the rent is set as 30% of the tenant’s income, meaning that a tenant with no income could pay as little as nothing in rent, even when the apartment is in a desirable location. Other apartments in different programs first have a rent set, and then are allocated to people whose income has been determined to be appropriate for that rent. Sometimes these politically-determined rents might be relatively close to a market rent for a comparable apartment in the same area; but other times the “affordable” apartments are located in desirable areas, and the local market rent for a comparable apartment could exceed the “affordable” rent by a factor of five, ten, or even more. Such disparities occur, for example, in desirable Manhattan neighborhoods, as well as in waterfront areas in Manhattan and also Brooklyn.
So we have large numbers of apartments that would have market rents of perhaps $3000 up to even $10,000 per month, going for perhaps $500 to $1500. Of course, long waiting lists develop for these subsidized apartments. Some designated political gatekeeper gets to decide who gets the next apartment when it becomes available. Now, what is the chance that such a process can proceed for years and decades without pervasive corruption? . . .Read More
If you were asked to identify the biggest problem facing the United States today, what would be your answer? I think that the answer is obvious: out-of-control entitlement spending that threatens to bankrupt the country.
Reasonable people might differ about this assessment. For example, some might cite the threats posed by international strategic adversaries, like China or Russia or Iran. Or the threat of a rogue power like North Korea or Iran getting, and maybe using, nuclear weapons. I’m not saying that these aren’t serious problems, but just that there’s not much that can be done about them that we aren’t already doing. Also, I don’t think the chances of any of these guys doing something really stupid, like launching an unprovoked nuclear strike, are very high.
By contrast, the entitlement funding problem is gigantic, and obvious, and by no means imaginary, and currently nobody is doing anything about it whatsoever. The bonded national debt — currently around $20 trillion and about 100% of annual GDP — is often cited as a big problem. But the unfunded future liabilities of the Social Security and Medicare programs are far higher. The 2018 Trustees’ Reports for the Social Security and Medicare programs put their 75-year unfunded liabilities at approximately a combined $50 trillion (approximately $13 trillion for Social Security and $37 trillion for Medicare). And many analysts give credible reasons why those figures represent substantial low-balling of a much bigger problem. For example, James Capretta of the American Enterprise Institute, in a June 2018 post following release of the Trustees’ Reports, points to highly optimistic assumptions about ability to control future Medicare costs (“the Medicare projections assume deep, permanent, and ongoing cuts in payment rates for physicians and hospitals that are difficult to believe will be implemented”), as well as equally optimistic birth rate assumptions. Other credible observers think the shortfalls, particularly on the Medicare side, could easily be double or more the government’s official projections. For example, from Michael Tanner of the Cato Institute in 2015 (“[I]f we return to double digit health care inflation, we could see Medicare’s liabilities swell to more than $88 trillion.”).
You may recall that President George W. Bush made a serious effort at least to begin to address this problem. During his first term, he appointed a Commission to come up with some solutions on the Social Security side, and the Commission proposed a series of reforms. None of them went anywhere in Congress. W did not try again in his second term. President Obama, and now President Trump, have showed no interest in this subject.
Anyway, I mention this subject today because not only is nobody paying any attention whatsoever to the huge problem, but over on the Democratic side, with the 2020 presidential sweepstakes just getting started, there has suddenly erupted some kind of a bidding war as to who can offer the most grandiose and completely impossible set of proposed expansions to the existing entitlement state.
It was Bernie Sanders, of course, who laid down the original marker for the bare minimum list of new entitlements for a true “progressive” Democrat to embrace. Bernie’s list in his campaign for the 2016 nomination included the following:
Medicare for all.
Social Security benefit increases
College affordability (free tuition for all!)
New paid leave fund
Bolster private pension funds
Youth jobs initiative
In a September 2015 article, the Wall Street Journal put a ten-year price tag on that list of $18 trillion. Others put the figure at $30 trillion or more. Whichever it is, Bernie’s list has turned out to be merely the small opening bid in what is quickly becoming a much grander game.
Credit new “it” Congressperson Alexandria Ocasio-Cortez with launching the advocacy for what she calls the “Green New Deal.” We’ll eliminate all fossil-fuel energy within 10 years! With government spending and subsidies tossed out left and right, of course. Next thing you know, the presidential candidates are lining up to get on the bandwagon: Elizabeth Warren, Cory Booker, Beto O’Rourke, Kamala Harris. Do any of them have a clue how much this might cost, let alone how it could be engineered? Not a chance. A recent study by Roger Andrews at the site Energy Matters put the cost of batteries alone for a wind/solar/battery system just for California at about $5 trillion. Multiply by about 8 to get a cost for the full U.S.: $40 trillion. As you know from your cell phone, the batteries would need to be replaced every few years. The cost of the wind turbines and solar collectors is extra.
Where to from here? Ms. AOC is never short of other bright new ideas. How about “Housing as a human right”? She must be inspired by the great “success” of the New York City Housing Authority — an infinite sink for about $2 billion a year in federal funds and in desperate need of some $30 billion for capital repairs. Multiply those numbers by about 30 if you want to replicate on a national scale. Oh, and the 170,000 units of NYCHA housing somehow never make a dent in the “homeless” problem.
And then there is the proposal for “reparations” for black Americans, most prominently pushed by Representative Maxine Waters. She has recently become the Chair of the House Financial Services Committee. Any price tag for that? It’s whatever you want it to be. Make your bid!
These are people who talk endlessly about “sustainability.” They just have a different definition of the word than I do.