I am not one who gets worked up because some people have more money than I do, even a great deal more. When I read about the mansions and yachts, the private jets and bottles of wine that cost enough to feed my family for a month, I feel pity more than anything else. What small and insecure people, to have to pile up so much stuff to feel that they are worth anything.
I tend to think this way even about the growing — and much-publicized — gap in income and wealth. It really doesn’t matter much to me whether Bill Gates has a gazillion more than I do, or merely a bazillion more, so long as the rest of us have enough, and so long as there are no toxic side effects. Gates’ garage holds more than a hundred cars while mine holds one plus a lawnmower and some paint. Big deal. He can have it.
The trouble is, the consequences of the wealth gap are getting to be as big as the gap itself. Political power is not the least of these; and when the people who run the country are insulated from the travails they visit upon the rest of us — when they can oversee military invasions from which their own kids are exempt, for example — the result is carcinogenic, politically speaking. But the thing that concerns me in particular today is something more concrete: namely, homes.
This came to mind as I read the first installment of The New York Times’ series on social class in America. (That the Times is writing about class is not without what might be termed “perspective issues,” but at least they are trying.) The piece focused on Nantucket Island, off of Cape Cod, and how rich people are driving up home prices there. They are buying everything in sight, and pushing prices to Kilimanjaro levels. Wayne Huizinger, founder of Blockbuster and owner of the Miami Dolphins, needed a little more room, so he bought a neighbor’s house for $2.5 million.
Then there’s Richard Mellon Scaife, heir to the Mellon Bank fortune and financier of Right Wing causes. Scaife bought an extra Nantucket home too — for his staff. It would appear that the existence of inheritance taxes has not crimped his lifestyle unduly.
It isn’t just Nantucket Island. Extra home sales are booming across the country. According to the National Association of Realtors, more than a third of all home sales last year were second — or third, or fourth — homes. You read that right. More than one in three. Altogether, almost 44 million of the homes in this country are extra homes, compared to 72.1 million primary homes. To put this another way — and I’m quoting from the Realtors here — “62% of the housing stock in the United States is owned by persons who own other homes or housing units.”
Not all these extra homes are vacation homes. Many are owned for investment, and rented out. Some of those in turn are vacation rentals, so the statistics get fuzzy around the edges. But the main drift is clear. A good portion of the nation’s homes are being bought by people who have a home already, and this makes things a lot tougher for those who don’t. Some people at the table are taking extra helpings, while a lot of others are left with empty plates.
As I said, it really doesn’t bother me if Mr. Scaife houses himself like French royalty. If he feels that he needs it that’s his problem not mine. I’m just glad I don’t have to pay the heating bill. But when the thing that trickles down is hardship, that’s another story. Sure, garage mechanics aren’t in the bidding for those mansions on Nantucket. But price explosions at the top of the market tend to cascade down the line. The merely super-rich, as opposed to super-duper rich, end up buying smaller houses, and pushing up the price of those too.
This phenomenon is going on in the community where I live. It’s a town in Northern California, near the coast. The land still is mainly ranches and dairy farms; until a decade or two ago most of the homes were owned by people of modest means, including locals of long standing. Then the Silicon Valley boom started a land rush, and it hasn’t stopped. Houses are going for extraordinary prices. Probably a majority of people in town couldn’t afford to live here if they didn’t have a house already. Those who don’t — that is, renters — are being forced out one by one. This includes kids who grew up here and now can’t live here, a situation that does not improve relations between newcomers and locals.
But then, a fair portion of the newcomers aren’t really coming. To be sure, some regard their house out here as their real residence. They have apartments in the city just because they earn money there. But for others, these are extra homes, not primary ones. During winter months the owners might not be here at all. One family — not a recent purchaser — had a water leak that went on for months. Eventually they had a $2,000 water bill. They didn’t fix it sooner because they didn’t know about it; they hadn’t been in the house for all that time. Another house sold for close to seven figures. Remodeling went on for months. I wondered who could afford to pay that kind of money for a house and then let it sit empty.
Then I learned that someone in the next town had bought this house to be a guest cottage. The previous owner had worked for the county. This one, I venture to guess, doesn’t. Another middle class home had soared out of middle class orbit.
What happens then? Sprawl, for one thing, along with traffic, bad air and government expense. Developers and their friends blame high home prices on people who care about the land. Just bust open development restrictions, level all the forests and fields, and everything will be fine. But land stewards aren’t the ones pumping up the housing bubble. If we just used the housing that exists already a little less wastefully, there would be a lot more to go around. We could have open space to which to take our kids, and housing as well.
This isn’t just a matter of vacation spots by the way. City apartments are being bought up by the over-housed as well. My niece had a friend in college from New York whose parents bought her a pied a terre on Central Park West. They bought another one for her brother. (Talk about arguments for progressive income and inheritance taxes.) A staple of New York City real estate is the moneybags who buys adjoining condo units and turns two into one. Jerry Seinfeld bought a whole building and turned it into a garage for his fleet of cars.
The relentless calculus of supply and moneyed desire is not the only economic principle involved. So too is the distinction between productive and nonproductive wealth. Apologists for the wealth gap argue that massive fortunes at the top actually are a boon for the rest of us. They provide capital for the enterprises that bestow jobs and prosperity upon all. The argument works better as romance than as reality. Much of the money in question actually goes into the Wall Street casino in which it never touches a productive enterprise. Mark Cuban, the billionaire owner of the Dallas Mavericks basketball team, was not the first to call speculation in stock values a “Ponzi Scheme.”
Besides, it doesn’t take a wealth gap of current proportions to generate investment to begin with. But let’s grant the romance for the sake of argument. Still, it does not apply to real estate, in particular land. That’s because land is a “nonreproducable” asset. There’s only so much of it. When more people buy cars, it tends to bestir the production of cars. That doesn’t happen with land. More money pouring into land speculation does not result in more land. It results rather in higher prices for land.
No less a rhapsodist of wealth than George Gilder made this point in his book Wealth and Poverty, which was a kind of hymnal for the Reagan Administration. Gilder, following Keynes, called land a “sump of wealth”, along with gold, collectibles, and the like. When speculation in these reaches a certain point, he observed, the result is a “decline in the returns to productive capital and a rise in the profits of collection and speculation. The economy is reoriented away from productive enterprise and toward nonproductive activities, away from inventions and risks and toward Caribbean resorts and early retirements.”
Or, as John Stuart Mill once observed, landowners “get rich in their sleep.” What is true of land is true in large degree of extra homes built on the land.
Whatever the case for large fortunes in general, let us be spared the argument that when Mr. Huizinga spends millions for a supplemental extra home on Nantucket, the gentle rain of prosperity falls upon us all. And in fairness let us not point the finger only at the rich. The entire second-home boom is involved. However you do the math, when 44 million of the homes in America are extra, things become harder for people who don’t own even one. And pressures to bulldoze our remaining open space increase.
Those aren’t the only problems. Second homes often are, for much of the year, empty homes. This means fewer customers for local stores, and fewer volunteers for community organizations. It means people who don’t give a whit about the local schools and the like. The Boston Globe touched on this in a story on the hollowing-out of Provincetown, Massachusetts on the tip of Cape Cod. In one eight-unit condo complex there was just a single year-round resident. This woman proposed to her condo association that they chip in $25.00 each for snow removal in the winter. “Their answer was, ‘We’re not here in the winter. We don’t care,’” she said.
I know, that’s Provincetown, the gay summer mecca. But this is happening all over. And I’ll tell you something about P-town. It wasn’t that long ago that the summer influx took place in a community that was largely Portuguese and working class. I grew up near there on the Cape and I can remember burly Portuguese fishermen walking down Commercial Street barefoot in the wintertime. Not many fishermen are buying houses in P-town these days, and it’s not just because the fish are gone. It’s because second home buyers are helping to price others out.
Americans aren’t likely to support outright restrictions on second homes. Whether it’s the beach house on the Cape or the lake house Northern Minnesota, the getaway is part of the culture, and that’s not likely to change. But that doesn’t mean the government should subsidize this extra housing, which it does today. Why should homeowner tax breaks apply equally to houses that are not really family homes, for example, especially above a certain income level? Couldn’t we take some of that money and help young people buy their first home?
Then there’s California, where Proposition 13 has imposed a strict limit on property taxes since 1978. Prop. 13 was sold to voters as a protection for the family home. Just a few days ago, Governor Arnold Schwarzenegger returned to this theme. “I tell them [i.e. the Democrats], ‘Don’t you dare touch Proposition 13, because the people of California voted to protect their homes,’” he said, ginning up support for a new ballot measure calculated in part to revive his own political fortunes. Well, fine. But then why does Proposition 13 apply to all property taxes, not just those on homes?
In particular, why does Proposition apply equally to second and third and fourth homes, which tend to deny others the ability to have a home to protect? In reality, Prop 13 has tended to inflate the price of real estate generally; lower property taxes just get translated into higher sales prices. Plus it has decimated public services, including schools. Only a heroic last-minute effort stopped the closing of the public libraries in Salinas, where John Steinbeck lived and wrote.
To establish a separate tax category for extra homes wouldn’t just provide more revenue. It would help make housing a little more affordable for genuine home buyers. And dammit, someone who can afford to pay millions for a third or fourth residence can afford to pay taxes to the community that they are helping to deplete.
Such changes are not likely to be viewed favorably by the reigning political class.. A measure that would cause even a minor increase in the tax bill of a Richard Mellon Scaife would become Armageddon to the beneficiaries of his largess. Then there are the consultants. As it happens, there was a recent profile in the Boston Globe of Michael Murphy, the Hollywood-based Republican consultant to such eminences at Arnold Schwarzenegger, John McCain, and Mitt Romney, the Massachusetts governor and Presidential aspirant. The piece included this passage:
“As he spoke, Murphy sat on the terrace of his sleek, modern home atop Laurel Canyon with a spectacular view of the Los Angeles Basin. The house, purchased 18 months ago for $1.2 million and renovated at a cost of almost $200,000, abuts a sheer canyon wall. Murphy also owns a co-op apartment in New York City, a lake house with his parents in Michigan, and 39 acres in Nova Scotia.
“Never married, Murphy wants to settle down, though friends privately doubt he can decelerate long enough for a permanent relationship with a woman.”
The coded message of that last sentence aside, that’s a lot of housing for a guy who doesn’t have a family. Hey Mike, I don’t want to cause you hardship. But maybe someone who does so well from helping muck up our democracy, ought to do a little more to help others who don’t have even a room to call their own. Not confiscation or anything close. Just a little more.
If the shoe seems to pinch, well, no one said it was going to be easy to uphold the ideals of this great country. Here’s a passage from a letter that Thomas Jefferson wrote to James Madison. He was describing the conditions he had seen in France, where a handful of very wealthy people kept large estates while ordinary people had little if anything:
“I am conscious that an equal division of property is impracticable. But the consequences of this enormous inequality producing so much misery to the bulk of mankind, legislators cannot invent too many devices for subdividing property, only taking care to let their subdivisions go hand in hand with the natural affections of the human mind…The earth is given as a common stock to man to labour and live on. If, for the encouragement of industry we allow it to be appropriated, we must take care that other employment be permitted to those excluded from the appropriation.”
Jefferson didn’t mean that all open space should be subdivided. He had too much respect for nature for that. He meant that the ownership of human wealth – land in particular — should not be concentrated in a way that denied some a basic right to a piece of this earth. That appears to be what is happening with extra homes today. Here’s something else Jefferson said in this same letter, that the apologists for the housing wealth gap might ponder:
“Another means of silently lessening the unequality of property is to exempt all from taxation below a certain point, and to tax the higher portions of property in geometrical progressions as they rise.”
A progressive property tax, in other words. That raises a lot of interesting questions, such as the difference between the fruits of individual enterprise and socially created wealth. We’ll return to this another time. For now, please note: an architect of our American freedom proposed it, not us.