Utopianism

A Good Objective from TikTok

There was an interesting video on TikTok that presented some utopian objectives based on moving the needle more toward socialism from where we are. As an economist, I am in support of moving that direction from here (2022), but I also want to avoid overcompensating (without objecting to appropriate compensating). Let's take a look at the key features presented.

• 3x real estate tax for unoccupied property
• rent capped at 75% of estimated monthly payment if property were sold
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• UBI at median rent + food + utilities + medical
• minimum wage for 100 hours work in a month is equal to ubi
• all income that exceeds 50x lowest salary in a given corporation is taxed at 99%
• medicare available for all
• medicare is accepted by all health providers

rent capped at 75% of estimated monthly payment if property were sold

When there is a high return on investment, more of the thing in question gets built. When there is a low return on investment, less does.

This would result in fewer rental properties being available. This shortage would move some renters to purchase houses, which would drive up prices.

That increase in market price would allow existing owners of similar properties to charge more than their existing mortgage allowed. But that would be temporary, as those units would gradually be sold off to resident owners.

The long term effect would be to bias the market in favor of resident owners. Rental properties would have to have higher market value relative to their carrying cost. This would mean lower quality of landlord-paid features like landscaping and shifting of costs such as property maintenance from the landlord to the renter. Security deposits might increase and be assessed on each lease renewal, with big bites taken for property maintenance. HOA fees might be split out, with padding becoming a common (though presumably illegal) practice.

Forcing price to remain lower than the equilibrium price is hard, short of government subsidies. I believe it would lead to a drastic reduction in the number and kind of properties being offered for rent. There would be more cases of high density housing with property features, like swimming pools, that would be tacked on as charges to make property development a competitive investment when compared to equities, bonds, direct investment, and other investment opportunities.

It would lead to a worsening of housing problems due to shortage of rentable units, which would ultimately lead to either government-built housing or a UBI-like housing stipend.

Maybe Not: Short Term v. Long Term

Leases cause lock-in, which prevents mobility of renters, but they have a locked in price. There is friction in people moving to smaller properties or moving in with roommates. So perhaps price shocks, speculative investing, and bull runs in market rent can cause short term rent spikes that are damaging to the economy as a whole. In that case, a cap that was above the level required to be competitive with other investments, but lower than the short-term rent level (haha - using the term "rent" there in the economic rent sense).

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• Interest rates for good risks would rise.
• Interest rates for bad risks would rise less, or fall.
• Overall interest rates would rise.
• Speculative economic activity would have a higher default rate.
• Speculative economic activity would fall.