Weird UBI Argument About Rents

I am not that interested in arguing about UBI on a day-to-day basis, but I’ve now seen one silly argument against it enough times that I feel compelled to intervene. The argument is this:

In fact, workers may not even see much of the benefit of their UBI check: if their new gains are simply passed on to landlords and merchants through higher rent and prices, the benefits will be entirely illusory, even as people appear to be receiving an enormous handout.

Perhaps this argument comes up a lot because those in the chattering classes often live in areas where local policymakers refuse to do things to keep rents under control, e.g. by building out more space or fixing prices. But even if you live in such an area, it is still a shocking theory.

Its advocates may not realize how shocking it is because, in their mind, what they are arguing is that a UBI leads to higher rents that consume the value of the UBI. But what they are actually arguing is that a UBI increases disposable incomes and that increasing disposable incomes leads to higher rents that consume the value of the income increase. Stated this way, the shocking nature of the theory becomes clear: if true, the theory predicts that anything that increases people’s incomes is pointless.

The Fight for $15 is pointless. The fight for unions that can negotiate higher wages is pointless. The fight for a more generous welfare state is pointless. Nearly everything that people talk about with respect to the economy and what could be done to improve the plight of the bottom half is actually pointless. Why? Because in all cases the internal mechanism of those proposals — increasing disposable incomes — is counteracted by a corresponding rise in rents, according to this particular anti-UBI theory.

Needless to say, I think the theory is pretty obviously false. Rises in disposable incomes generally do leave people better off, even net of rent payments, even in places where local authorities allow the price of space to spiral out of control.

But if you think it is true, you really should ask yourself what the source of the problem you have identified is. If it’s the case that higher minimum wages, stronger unions, and more generous welfare states are all helpless against rent hikes, then maybe the issue you are worried about has nothing to do with the UBI and everything to do with your area’s dumb housing policy.

  • I suspect UBI will have two effects on rent:

    1. Rents in currently bad neighborhoods may go up slightly because landlords will be sure their renters have the means to pay and the means to be choosy, so those landlords will be obliged to invest more in the maintenance of their property, which may affect the cost of renting.

    2. Rents in currently good neighborhoods will go down because renters will no longer feel they have to pay a premium just to live far away from desperate people, so those landlords will have to lower prices to compete.

    If I’m right, everyone wins.

  • Mark Mollineaux

    “Rents in currently good neighborhoods will go down because renters will no longer feel they have to pay a premium just to live far away from desperate people.”

    Desperate is relative. Consider what happened in the Bay Area, where the well-salaried become desperate, and the previously desperate become homeless.

  • Yes, which means rents will go down differently in different neighborhoods. See my comment to eean.

  • eean

    having good and bad neighborhoods that are defined by presence of “Desperate people” (give me a fucking break) means you don’t have a housing crisis. Bad neighborhoods in the SF Bay megaregion are the cities hours away from jobs.

  • The first people we’re concerned with, I hope, are poor people who can only afford to live in the worst neighborhoods or cannot afford homes at all. UBI solves both of those.

    Of course there will be other factors in the cost of rent. Any place close to something many people want will be more expensive under any form of capitalism.

  • eean

    we have a major supply problem of housing in some markets and UBI doesn’t address this at all. I agree with Bruenig that UBI shouldn’t be judged poorly because it doesn’t result in housing being built in locales that ban sufficient production of housing. UBI doesn’t need to be seen as a solve-all to be a good idea.

    “UBI solves both of those” no it doesn’t but that’s OK

  • How does UBI fail to end homelessness and/or let people have more choices than the very worst neighborhoods? UBI is a capitalist solution that gives people capital so they can satisfy capitalist owners of housing. One of the consequences of that is capitalists will have to be at least a little more competitive than they are now, because the people who get UBI will have more means than they do now.

  • Mark Mollineaux

    Positional goods (such as location) can be bid up without limit.

    If you can inject wealth to all players in a system where positional goods don’t matter much, it would absolutely do wonders to give everybody better alternatives.

    …However, if the system is at the heart of a city, there is every reason to believe that positional goods (being allowed to stay in the city, basically) will eat up the increases. So we can either write off cities as not mattering very much (as Bruenig does here), or try to find ways to fix the positional good problem.

  • Konrad_Lorenz

    They can’t be bid up without limit, because eventually the value of the positional good isn’t competitive with the opportunity cost.

    Of course, the primary value of the positional good is just the value of the salaries you can obtain in the region. The total compensation adjusted for cost of living has to be “worth it” for people to keep paying the rents. Otherwise they can just take a (nominal) pay cut and move somewhere else and enjoy higher spending power.

  • Mark Mollineaux

    “Of course, the primary value of the positional good is just the value of the salaries you can obtain in the region.”

    And the value of community, staying close to people they know and love. To say this can be bid up without limit isn’t *too* much of an exaggeration… a person’s sense of community can be extraordinarily valuable.

  • Konrad_Lorenz

    No, those kinds of things don’t determine property values. In fact the highest property values tend to correlate with lower community bonds and less ability to stay close; there is more churn where it’s harder to make rent.

  • eean

    it might help with homelessness, the homeless of the Bay Area could I guess move to Stockton and rent. But homelessness is only a subset of the problem of the housing crisis, which is mostly about the areas with the most jobs and opportunity having the outrageous housing costs.

    There isn’t enough housing, the only solution is to build more housing. If the reason we didn’t have enough housing was “no one has money to pay for housing” then UBI might help, but that’s not the problem.

    Like single payer might help rural hospitals some, but improving rural health care might also require building new hospitals in underserved areas. Single payer doesn’t simply make the problem of healthcare inequality go away entirely. It solves one part of the problem not the entire problem.

  • eean

    The housing crisis undermines every goal of the broadly defined left. Education, healthcare, labor rights, –
    everything is indeed quite irrelevant if housing is a fixed supply and insufficient.

  • Konrad_Lorenz

    OK… but housing isn’t a fixed supply.

  • eean

    The solution to the lack of supply isn’t higher wages. At least, not in some high cost areas with terrible public policy.

    There’s no reason to think the market and government will react with additional supply and a lot of evidence that they won’t.

  • Konrad_Lorenz

    High-cost-housing areas will have a local shortage of housing, almost by definition. If this is a “problem” then the problem is just inequality of housing prices. Unclear why it’s a problem though. The housing stock can and will increase with demand, even if the new stock is not in the most desirable places. Putting new stock in the most desirable places is never going to be easy because those places have already become densely populated. Again this is almost by definition.

    High demand, high prices, dense population, and lack of space for new development, will all inevitably go together, no matter what is ever done. The nature of things is simply that these are all very heavily correlated. So that just needs to be accepted. It’s not necessarily something that needs to be a “problem.”

  • eean

    Ok so your solution to high cost housing areas is low cost housing areas? What a pathetic goal post move.

    And actually it is a fucking problem that we don’t build housing in areas with jobs and opportunities because of stupid public policy.

  • Konrad_Lorenz

    Read better. It’s not “stupid public policy” that prevents you from building a house in a place that there is already a house.

  • eean

    what prevents it then? it’s not physics. a typical single family house has room for a small apartment building or a row of townhouses.

  • PaulDavisTheFirst

    ‘Putting new stock in the most desirable places is never going to be
    easy because those places have already become densely populated.”

    Based on absolute cost of properties, this isn’t true. There are many very expensive properties situated in very low density population areas, presumably reflecting their “very desirable” status.

    It seems more appropriate to focus on high demand, and/or high prices per spatial unit.

  • Konrad_Lorenz

    What areas are you talking about? Of course you can still put an expensive house in an area that is not in high demand, but if the area is in high demand you would instead put in a big apartment complex and increase the density so that you can make a big income.

  • PaulDavisTheFirst

    Consider an area close to me, Gladywne, PA. It’s one of the higher income zip codes in the country. It’s comparatively very low density (very large houses on very large lots). The houses cost a lot (relative to the local area, including Philadelphia; not to Manhattan). But there isn’t “high demand” to live in Gladwyne – it doesn’t have much to recommend it apart from its current state of large scale family estates. Public transportation, shopping, cultural life – none of the above. If you started building big apartment complexes there, it’s far from clear that they would ever fill. Indeed, there’s an old mill there which has had 3 false starts as the basis for a condo, each time dying because it’s clear anyone would really want to live there.

  • Konrad_Lorenz

    I don’t know how you’re claiming that this is one of the most desirable areas then.

    The houses can cost a lot because they are nice houses even if the location is merely average. Real estate is not _entirely_ “location, location, location.”

    It definitely doesn’t sound like Gladywne, PA is one of the places where people are concerned about being unable to add large amounts of new housing stock to satisfy runaway demand.

  • PaulDavisTheFirst

    Gladwyne PA is just an example of an area that many very wealthy people find very attractive to live in, but in which all the available land is taken (by large lots). There are many such areas across the country. They are highly sought after (based on property values), but there is little-to-no-scope for increasing the housing density.

    Such areas contradict your point that “Putting new stock in the most desirable places is never going to be easy because those places have already become densely populated.”

  • Konrad_Lorenz

    OK, I think I already addressed all that. I don’t think it contradicts what I said as it doesn’t seem to be one of “the most desirable places” in the relevant sense.

  • MichaelDrew

    Even if they can’t upgrade their houses much, giving them money will help them upgrade their lives in other ways, on goods that respond differentially (less) than housing prices.

    Even if a UBI meant that housing prices respond to it by rising differentially (more) from other goods, there’s no axiom that says that the benefit of the UBI for other consumption will be exactly and perfectly offset by housing price rises.

    Housing prices are a problem, and low incomes are a problem. You can address one without addressing both.

  • L_B_B

    The problem with the “UBI drives up land rents 100%” argument in the actually existing world is that real world taxation systems do tax land rent to different degrees. We have direct taxes on land property with property taxes, income taxation of landlord income, and corporate and progressive income taxation which will hit both earned and unearned income from multiple sources including land. So if some of that tax income goes to fund welfare spending, we would expect some of that spending to be LVT-funded, so to speak, and therefore would not be used to bid up rents.

    To the extent that a tax system seeks to exempt landowners from taxation (property tax caps or excessive depreciation write-offs against landlord income), it will represent taxation of labor income that will just redistribute back to labor income, which is the basis for the rents to begin with. That’s why the “UBI gets sucked into rents” crowd should caveat by saying “the amount of UBI or income gains that will be bid up in land rent is inversely proportional to the proportion of land rent that is being taxed,” and in the real world, since some land rent is taxed, some UBI/IGs will benefit workers.

  • pyradius berning

    Kinda touches upon the All Taxes Come out of Rents principle. But yeah in general the ‘Fight for 15’ is largely pointless without restructuring tax policy to eliminate speculation in Land.

    Minneapolis, MN Rent Prices
    1-bdrm Jan 2011 = $875
    1-bdrm May 2017 = $1432

    2-bdrm Jan 2011 = $1107
    2-bdrm May 2017 = 2040

    MN min wage 2011 = $7.75
    MN min wage 2017 = $9.50

    (2011) 1 month gross income @ $7.25 = $1160
    (2017) 1 month gross income @ $9.50 = $1520

    Landlord wins.

  • Lewis

    Even if supply didn’t change, income increases would only consume all of income gains through a very unusual utility function. Couldn’t happen with Cobb Douglass or LES or CES. The people making this argument think they are on to some shocking truth of economics, probably as a way to get attention I guess, but actually don’t know very basic urban economics. Shrug it off and let’s get that UBI/single payer.