What Would Henry George Say?
Still Relevant, Still Poignant
By Ben Winck
July 7, 2021
By Ibrahima Drame
Since the Covid-19 pandemic began, low mortgage rates and high demand have fueled a housing boom that has become one of the most troubling aspects of the economic recovery. In most of the country (95%), a year of frenzied buying and price gains in the double digits (15 to 20%) have driven the housing market out of sync with the rest of the economy. This situation has perplexed the Federal Reserve who is pondering on what actions to take. Clearly, the Fed is in a dilemma; hold the rates steady and let the housing bubble keep inflating, raise the rates and face the risk of cascading defaults, perhaps worse than during the 2008 financial crisis. For now the Fed seems to have decided to hold rates, but this is not a sustainable policy option.
In reality, the best answer to the riddle lies beyond the mandate of the Fed. Back in 1879, Henry George offered an elegant fiscal solution that would address the problem with little impact on the financial system; the land tax. Aside from people purchasing bigger houses for the sake of social distancing, two main actors are driving today’s housing bubble: individual speculators (house flippers) and corporate landlords. The Fed’s easy monetary policy is enabling both. What’s motivating these actors is the huge equity payoffs in housing which, in fact, are the result of rising land values. By returning the community created equity to its rightful owner (the community), George’s remedy would not just correct a wrong, it would stop speculation dead in its tract, avert another financial crisis and redirect credit to better productive use.
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