Hats off to the News Journal and particularly Eric Ruth.. (I’m not even going to post the link due to the horrible structure of their page and the fact that the link will be discontinued in just a few days.) The article appeared in Sunday August 26th’s hard copy paper and was featured on the front page of Section E, the Business Section.
A) Across the state more than one in four renters have to pay more than 50% of their pay on housing.
B) The supply of apartments that lower income Delawareans can buy into, dropped 47% statewide and 61% in just New Castle County ever since the Bush presidency began and tax laws were changed.
C) To afford the “average” two bedroom apartment in Delaware, a worker must make $18.68 an hour…. yet none of the jobs coming on line will come even close to that amount.
D) Someone working close to minimum wage would need to work 114 hours every single week to meet that amount ( there are 168 hours in a week and if given 8 hours of sleep a night, that only leaves 112 hours meaning that person would only have 6 hours one night to spend not working…. )
At the same time, apartment space costing over $1000 increased during the Bush tax years by 347% in New Castle County and 1610% in Kent County….. According to Kevin Kelly, nothing new in affordable housing has been built in Delaware ever since the Bush Tax Years began.
In his words…. “THE GOVERNMENT SIMPLY NEEDS TO DO MORE”…. (That was a developer speaking, btw. No “we built this” there….) (Also to blame was Tom Gordon’s UDC that put limits on density. Limits on density mean more land area is needed per resident thereby raising costs per unit because more land is required to be bought per each structure.)
Enough data… Now for the interpretation of it..
Simply put: the costs of rental have grown beyond what the market can afford…. There are not enough people making enough money to pay for what the rentals will actually cost….
Two options. both involve government intervention. One, we can use public money to make of the difference. And the second, is that we can use private money to make up the difference. There is no other money out there so we are limited to these two options…..
In Option One, we can do it several ways. One we can use rent control to suppress the amount the owner get for the use of their individual properties.(legal) Two, the government can pay the difference between what the owner requires, and what the constituent can actually pay (subsidized)… Three, the government can forcefully legislate the minimum wage scale to a much higher rate, and in consequences jack up all wages across the bottom scale in the state… Four, the government can get into the housing business by itself contracting to build large scale properties with high density housing, and then subsidize those units based on their constituents ability-to-pay… All these are possible. All have been done before. All have extenuating consequences.
Option Two, is no better….
As private contractors go under(bankruptcy), equity firms can buy up properties at pennies on the dollar, and then with because of lower initial investment, charge much cheaper rates than could the property’s previous owner, who had too many costs to cover… (Bain Capital method)… Let’s say Toll Brothers goes under, with $2 billion in debt. That gets erased, and Bain Capital buys the entire complex for $1 million. It does not lose money; it is more concerned with the fact that it has space available that is not being utilized. If it can’t fill it for $800 a month, then sell it out for $700 a month, and when that market dries up, sell out for %600 a month. It is all profit so the equity firm really doesn’t care…) This forces rates down.. For how can you legitimately sell a similar property at $1200 a month, when across the street the exact same thing is selling at $600 a month.. To sum up, we can lower rental prices by bankruptcies and forced liquidation.
Obviously, if you want to earn as much off a property and can only get $600 a month per unit, then you will have to build twice as many properties on each square foot, as you would have if $1200 was reasonable. Equally obvious is that you would have lots of people living in a tiny space, and creating a higher density and demand for goods and services on the streets below… This aggravates frustration levels and makes living in such a climate unbearable.
The best solution is to return to normal tax levels.. those that existed before the Bush Tax Cuts. When you do that, it works on multiple fronts. The higher corporate levels get taken out of the amount of anticipated profit. Therefore, it becomes advantageous for a builder to now rent to a low cost tenant and be able to deduct that cost off his anticipated tax payment. If the builder is taxed at 50% corporate profit, and his profit from a $1000 dollar rental is $500… then he will pay 50% of that and only keep $250… Essentially the income coming into the firm will be $250 even though he actually get $500 and pays $250 of that in taxes. So, if he gets a 50% deduction off of what he loses in rent for someone of some type of affordable housing program, then his tax on that transaction, if he sells the apartment for $750 will be…. ($250 profit x 50%) – (tax credit of $250 X 50%) = 0 and he will pay no taxes on that income. He will make the same $250 in profit after taxes as if he’d sold it to a high income constituent for $1000… So now, he has to make a choice… do I sell it now at $750 and fill the apartment, or have it stand empty earning nothing until someone rich who can afford but doesn’t want the economical option of owning a home, just happens to fall into my lap… Obviously $250 for that property is better than the negative $30 the upkeep and maintenance would be on that unsold unit.
That example, is how higher taxes with deductions can force a private settlement of this higher rent problem.
Higher tax rates also force lower level incomes, higher. Minimum wage jobs are hard to keep skilled workers in. As soon as they become trained and an asset to their company, they take their skills to a higher paying employer. That is why there is incentive on the part of these employers to keep employees happy by paying them more money… If a minimum wage company is making $1 billion in profits, and paying 50% corporate tax on its profits, it will pay $500 million in taxes. That is money it earned and is lost. out the door, removed from the company. What happens when corporate rates climb higher, is that companies say to themselves, where can we put our money in our business so we don’t have to report as high an income and have to pay so much in taxes? How can we keep more of our money?
One is by building new units. Two is by putting more money into research and development. Three is by putting more money into advertising. Four is by allotting more money to be paid to good workers…. As any nut (except Duffy) can see, all of these options provide rapid growth to the overall economy. Multiply this by every corporate business, you have the seeds of a massive economic expansion….
So an employee who is a good worker, can rise from entering a $7.25 minimum wage opportunity to making $11 to $12 dollars an hour. Because he knows what he is doing it is actually cheaper for the company now to pay him more instead of constantly turning over $8.00 an hour positions and incurring regular training expenses as well as incurring the additional losses that come from a lost customer base, mistakes, inventory shrinkage, etc… That extra investment if not now placed in that employee, would have just gone to the government anyway, if he’d been artificially kept at $7.25 and hour.
So higher tax rates cause over all income to rise. And rising incomes make affordable housing that much more affordable…..
So, the way out of this conundrum, is to raise corporate tax rates. The problem began with the cuts, and will end, as the repercussions of the much needed tax rise start to enter the market…
This policy is ten years too late getting rectified. Waiting another 4 more years, will no doubt, negatively impact, if not destroy America forever….
Just raise the rates.. Vote in people who promise if elected they will raise corporate tax rates to where the fairly should be….
That is all. It is a simple solution, that is begging to be implemented… We know it works… Instead of facing reality, we just keep electing servants of the rich, who keep gumming up the works, messing things up… and so, after ten years, we have yet to return to sanity… Maybe this time, America will wake up… and realize … hey, they’ve been roofied…