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Basic Incomes and Housing

Tim Rourke Written in 2000, revised September 2008

The purpose of this essay is to draw the attention of Basic Incomes and Housing activists to each other, and to things they have not thought about yet.

Basic Income is sometimes also called a Guaranteed Income or a Citizen's Income. It is the old and very sensible idea of dealing with poverty by giving poor people enough to live on so that they are no longer poor. The obstacle to this is always that there are elites with an interest in keeping a large part of the population poor. Finding the money or resources to give to poor people to raise them out of poverty has never been an issue. Unless the country has been devastated by some natural or man made disaster, there is always enough for everyone's need but no one's greed.

As the economic system of the elites falls apart, globally this time, there is a new and worldwide interest in Citizen's Income plans. It is even beginning to reach Canada. There is a debate about the modality of delivering a Citizen's Income. The idea of doing it through a Negative Income Tax, in which people get a refund if their net yearly income falls below a set line in order to bring them back up to the line, is supposed to be the "right wing" version of BI. The Universal Demogrant, in which everyone is simply given a grant equal to the basic cost of living, is supposed to be a the "left wing" version of it. This is because the original proponents of a NIT suggested a cutoff line that would still have left people in severe poverty. And they later became 'intellectual whores' of the far right.

NIT picking about a Demogrant

To argue over NIT versus Demogrant is to argue over the details of administering a Citizen's Income. In one way, what really matters to impoverished people is how high the basic income is set, and whether it is a true entitlement. But there are problems with NIT; it gets paid to families instead of individuals. It also would not be paid regularly enough. And it would be harder to see exactly who is getting what. The demogrant would cost more initially, but it has been shown that the net cost of the two schemes would be the same.

The big advantage of demogrant from a housing perspective would be that since it goes to individuals, it encourages people to double up, effectively enlarging the supply of low income housing. The present welfare system discourages people from sharing accommodations.

One criticism of CI is that it will be used as a wage subsidy, so that the working poor can be made to work for even less money. No doubt those who benefit from poverty will try to use it that way if they are forced to accept CI at all. Only an utter fool expects that CI will be achieved merely by creating popular consensus for it. The economic elites who need to make people poor so that they can be rich will have to be defeated politically and one of the lynch pins of their system removed. In other words, there will have to be some sort of a revolution.

But ruling elites have a way of preempting revolutions or turning them to their advantage. If an adequate living is given to the lower half of society, there are many ways in which the elite can take it back. By far the most effective is through rents. Proponents of CI are still unaware of the implications of housing policies, just as housing advocates are generally ignorant about the BI concept. One aim of this paper is to explain that a CI will not work without a system of rent controls and a social housing construction program.

evolution of housing

In colonial times Citizen's Incomes and housing did not matter much. People grew their own food, and built and repaired their own log cabins. When they got too old or ill to keep doing this, they died. Ever since people moved to the cities, housing has been built for the well to do, because that is where the highest returns are. This is why private developers will never build housing for the rest of the population. The first stage of urban housing for the poor was to cram people into the crumbling buildings that the well to do no longer wanted.

Later, various subsidization schemes were tried; the second stage. Most of the "private" apartment buildings standing today in Toronto were built in the sixties and seventies with help from the developers friends in government. So they are not really private. Even the most ardent free marketeers had to concede back then that it was cheaper for government to build and manage ugly concrete boxes directly rather than through middlemen. So we had the third stage of housing for the poor in Toronto, a social housing construction boom from the late seventies until the mid nineties. The ending of these programs has resulted in a rapid increase in homelessness to a disastrous level, as well as a steady increase in private rents under partial decontrol.

'inelasticity' of cheap housing prices

It is also well known that, at the low end of the rental market, the minimum rent is the maximum rent and always conforms to whatever the welfare system pays, less the cost of a survival diet. If less low income housing is available, more people are crammed into the same space. If more low income housing is available, the rent does not come down. I lived in Calgary a decade ago where there are no rent controls and most of the rooming houses were half empty, but the rents never declined. The people had to live somewhere and if they bargained the rent down it would have been taken out of their welfare cheques.

A little higher in the rental market the rent increases closely tracked increases in the minimum wage. With an apartment vacancy rate almost in two digits, the rents never went down. The landlords knew that if they let anyone bargain them down, soon his neighbors would find out and want a decrease, too. The bigger slumlords can let their buildings rot and know that they can hold out longer than the small slumlords. This will soon solve the oversupply problem for them.

So the principle way by which the wealthy will take back from the poor any increase in living allowances is through rents. No matter where you set the basic income, rent will soon consume most of it and any increase will be like giving it directly to the slumlords. Rent control by itself will only slow things down a little. There will be no incentives to create new low income housing, existing stock will deteriorate until it is condemned, and over time a shortage of low rental housing will keep increasing. Slumlords will pack more people into the same space and make their profits than way. The residents will be poorer even if their rents are controlled, because it costs more to live in rooming houses. You can not store food or cook it; you have to eat out all the time.

getting the 'rentier' out of the rent

A Citizen's Income will not work over the long run unless it comes with a social housing construction program. It would be best if the housing program were incorporated into the CI plan. The costs of social housing are local taxes, operating costs, and mortgage payments. It is a much cheaper way to house people because no profit has to be made, but part of that advantage is lost because most social housing is built too large for efficient management and is run from downtown by incompetent bureaucracies.

In the building where I used to live, almost everyone was on some form of public assistance. They are paying rent on a rent geared to income basis, set at 30% of their income. But the rents collected more than cover the cost of operating the building; heat, lights, cleaners, minor repairs, and so on. Throughout the housing authorities portfolio, the average cost of operating each type of unit is less than the shelter portion of the provincial welfare payment. This suggests that if these buildings did not have to pay for a mortgage and property taxes, they would be more than self sufficient.

In Toronto it is the municipal government that now pays all the costs of running the building that are not covered by rent. Why are these buildings paying property taxes to municipal government? Why does the city tax itself? Because like most cities across Canada it is forcing an efficient form of housing whose residents have no voice subsidize a very inefficient form of housing in the suburbs whose residents have a lot of clout. It costs far more per person to provide public utilities and services to bungalow type dwellings than to apartment type dwellings. Yet apartment buildings usually pay far more property tax in proportion to their use of utilities and services than do the single owner dwellings that most people who would not support CI live in.

Why should local governments take out mortgages in order to build social housing? This adds greatly to the cost of social housing so that not enough can be built to meet the need. Only the federal government can provide the funds with which to build enough social housing because only the federal government has control of the money supply when it chooses to exercise it. Many housing advocate groups are now demanding that the federal government use its surplus in order to provide grants to housing authorities in order to build.

Financing new housing from the federal surplus will only shift the burden of compound interest rates from the municipal tax payer to the federal taxpayer. Even with a budget surplus the federal treasury is still paying interest on the national debt. The tax money goes to the same bankers. Using part of the surplus to build housing means that this debt would be paid down slower. But the debt is never intended to be fully paid off and this essay is not intended to go deep into the realities of money creation. One could say that at least housing will be built this way but in the long run it helps to perpetuate a condition the country needs to get out of.

The federal government could finance all the housing needed by issuing new, non-interest bearing currency through the bank of Canada. This is how it financed the second world war. But the federal government taking back its right to issue the country's currency challenges another lynch pin of the ruling elites system and will produce even tougher resistance. It might be necessary for people with their new Basic Incomes to finance their own housing through the mortgage market at first, rather than challenge the established order in this way.

stage four

It should be feasible to create new housing on a co-operative model if everyone had a basic income that allowed them to pay six to eight hundred dollars a month for a one bedroom apartment, and if local governments are willing to let co-operative housing organisations assist them to set up housing programs. Or the organisation set up to administer a Basic Income could include a housing department. Before the federal and provincial governments 'got out of the housing business,' restricting the agency that used to guarantee the mortgages, an increasing number of coop housing projects were being completed by people with incomes no higher than that proposed by most 'left wing' BI schemes.

Wealth will likely find a new way to suck money out of low income people if the success of new social housing programs leads to a speculative inflation in lots suitable for apartment building. Governments would have to control the price of such land and would probably have to use expropriation to free up sites for development. Nimbyism would be a problem because of the reputation which social housing has gained due to bad management. Some housing advocates want social housing to pay no taxes at all but this is not washable. Property tax systems should be reformed so that apartment dwellers are not subsidizing the squandering lifestyle of suburbanites.

Co-operative social housing is the fourth stage of urban housing for low incomed people. The only way to get efficient managment of social housing buildings is for the tenants to run it themselves. Another aim of this paper is to explain to social housing advocates that cooperative managment or any kind of 'tenant management organisation' will be of limited effect until there is a CI.

co-operate, co-habitate

It is very hard to organize low income tenants because these people have to spend all their time and energy working, and they are always broke. Even existing cooperatives have a hard time operating because of this. But the combination of co-operative housing management with CI would be something very powerful. When people become free from much of the pressure to 'work' they can begin to be full members of their co-operatives, and then full citizens in society. They begin to learn the habits and skills that enable them to organize themselves in society to keep the rights that they have gained. Our society begins to move closer to being a true democracy.

The older, bureaucratically run housing authorities generally treat their tenants in an outrageously paternalistic way. They and private landlords would begin to have to deal with tenants who have some free time and resources with which to assert their own rights. This will give tenants more power in relation to their landlords than any vacancy rate or change in landlord and tenant law. It should make it possible for many social and private tenants to convert many of their homes into cooperatives.

Private landlords will rarely lower their rent. They will prefer to let their buildings run down. A CI plan will be in a race with them. The success of BI will depend on whether enough new, cooperative social housing can be built in time to stay ahead of wealth's ways of keeping low rental market supply tight, and rents high. Rent control will only give CI more time.

It is useless to propose to give people a Basic Income without also proposing how to keep the new income from being taken away from them. The Basic misunderstanding of most advocates of a Basic Income is that they are merely proposing a welfare reform. BI would profoundly alter the existing economic and power relationships in society. Very powerful interests would make great efforts to prevent its establishment or neutralize its effects.

When we finally get around to passing a BI act or group of acts, it will be a very complicated piece of legislation, designed to root into society the social revolution implicit in the BI concept. Getting there will take more than a network of BI supporters. It will come about through a strong coalition of rising social interests that sees BI as an indispensable part of an overall solution that encompasses their particular problems. Housing activists would be a part of such a coalition.