INCENTIVE, ENTITLEMENT, AND THE INEFFECTIVE SUBSIDIZATION OF THE HOUSING MARKET.

• Author: Hildebrand, Evelyn

America is made of pilgrims and pioneers, men and women who dreamed, worked, and sacrificed for a chance to build a home. Lady Liberty guards a "golden door" leading to the land of opportunity: a land that is wide open, where there is space and room to build a new life. (1) Much of the American dream centers on home, a place of peace and security, a place for family and friends to gather, a place to "breathe free." (2) Beginning with the Declaration of Independence, moving through the growth of the nation and continuing to the present day, American government has recognized the importance of this ethos in American life. (3)

Over the past century, policy geared towards ensuring every American has a home has dramatically expanded. (4) The Tax Code catalyzed this expansion by offering deductions and credits for taxpayer behavior that comports with government policy promoting housing; this policy was initially articulated in the Housing Act of 1937. (5) The Low-Income Housing Tax Credit (LIHTC) and the proposed Rent Relief Act highlight the government's vested interest in housing. (6) The LIHTC subsidizes the construction and renovation of low-income housing by awarding tax credits to private developers who will build or maintain low-income housing. (7) The proposed Rent Relief Act would allow renters a refundable tax credit which would either reduce taxable income by the amount of rent paid, or provide a refund check in the amount of rent paid if the renter has no tax liability. (8)

Ultimately, both of these provisions are problematic. Since the inception of housing assistance in 1932, dozens of attempted solutions and billions of tax dollars have failed to summarily solve the affordable housing issue. (9) Many people struggle to make ends meet--many more already receive government subsidies, and yet are not moving out of dependency towards homeownership or financial independence. (10) Ironically, some policy makers argue that the reason for this failure is a lack of sufficient government funding. (11) The real reason for this large-scale failure is that current government policy ignores the connection between incentive and ownership. (12)

Part One of this paper explores the philosophical and political thought supporting the uniquely American conception of freedom, a conception which relies on the connection between ownership and incentive. Aristotle, Aquinas, Locke, and Blackstone laid a foundation which Thomas Jefferson and the Founders incorporated and built upon in framing the Declaration of Independence. (13) Understanding freedom in the American tradition requires a definitional paradigm shift, one which distinguishes ownership from entitlement. In marked contrast to the American conception of freedom, the socialist credo as articulated in the seminal Communist Manifesto explicitly disavows incentive by committing to the demolition of private property. (14) Understanding and critiquing both intellectual traditions is critically important in framing effective housing policy.

Part Two analyzes the Low-Income Housing Tax Credit which allows developers to receive and trade tax credits in return for building and maintaining low-income housing. (15) Not only does the LIHTC cultivate a culture of opaque bureaucratic red tape as developers vie for limited tax credits, but the practical result is ultimately unsuccessful. (16) The LIHTC incentivizes the construction of very expensive, low-income housing--housing which would not be financially feasible without the credit. (17) Developers benefit while income caps assigned to low-income tenants create a disincentive that discourages tenants from increasing their income. (18) In addition to disincentivizing tenants from moving into better housing, the LIHTC is not financially viable, artificially existing underwater via a permanent government bailout. (19)

Part Three examines the Rent Relief Act, a proposed amendment to the Tax Code which would allow taxpayers to deduct or receive as a refund the amount of money spent on rent with certain limitations. (20) The provision counteracts the inculcation of a culture of personal fiscal responsibility by actively incentivizing reliance on a subsidy. (21) Since more of the subsidy is available where a renter spends a higher percentage of income on rent, the provision functionally encourages renters to move into more expensive housing because that housing qualifies for more of the available subsidy. (22) From an economic perspective, the predicted outlook of the proposed provision is not promising. (23) Subsidization of the healthcare and education fields provides both a compelling comparison and a compelling caution against the passage of the proposed provision. (24)

Policy impacts people, but policy also relies on people. Every government policy relies expressly or implicitly on assumptions about human nature, (25) and both highlighted provisions are ineffective because they rely on faulty premises. For the formation of effective policy on the question of housing, policymakers have to focus on the relationship between owning private property and incentive. (26) The housing crisis is really a crisis of freedom--and until the relationship between incentive and the right to private property guides policy creation, the problem of housing will remain unsolved.

PART ONE: PRIVATE PROPERTY AND INCENTIVE

1. The Intellectual Giants: Aristotle, Aquinas, Locke, and Blackstone

   The connection between incentive and the right to own private property is long held and deeply rooted in human history, tracing its way back beyond the Declaration of Independence, beyond Blackstone and Locke, to Aquinas and Aristotle. (27) In his book, In Defense of Property, Professor Gottfried Dietze summarizes Aristotle's view of private property as rooted in the natural law, rather than stemming from the ordination of a government because "private property is ordained by natural law and sanctioned by the ages." (28) Further, Aristotle articulated the connection between work and private property as the reward for that work: "in a communistic society men would have no incentive: 'That which is common to the greatest number has the least care bestowed upon it.'" (29)

   In his philosophical and theological work, the Summa Theologica, Thomas Aquinas echoes Aristotle's treatment of private property as a natural right stemming from the natural law as opposed to a created one flowing from a government decree. (30) Often credited with baptizing Aristotle's philosophy, Aquinas relies on his reasoning frequently and, in this instance, Aquinas adopts Aristotle's argument: man's right to private property is natural because "man has a natural dominion over external things, because, by his reason and will, he is able to use them for his own profit, as they were made on his account." (31)

   Beyond establishing that owning private property is a natural right, Aquinas argues that owning private property is not only natural, but "necessary to human life." (32) Owning private property gives man an incentive to work: "every man is more careful to procure what is for himself alone than that which is common to many or to all: since each one would shirk the labor and leave to another that which concerns the community." (33) Private ownership as opposed to communal ownership creates the cited incentive. (34) Further, private ownership of property creates a culture of order: "human affairs are conducted in more orderly fashion if each man is charged with taking care of some particular thing himself, whereas there would be confusion if everyone had to look after any one thing indeterminately." (35) Finally, where man has the right to private property, the stability of the state as a whole increases: "a more peaceful state is ensured to man if each one is contented with his own .... [Q]uarrels arise more frequently where there is no division of the things possessed." (36)

   The benefits that Aquinas cites as flowing from the recognition of the natural right to own private property find further support in the later writings of John Locke. (37) In his Second Treatise on Government, Locke articulates a vision of private property as a God-given right because "God gave the world to Adam and his successive heirs." (38) The world belongs to man in common at first, but once man labors over the earth, he owns it. (39) Once a man owns property, that right is both God-given and inalienable: (40)

   Though men as a whole own the earth and all inferior creatures, every individual man has a property in his own person; this is something that nobody else has any right to. The labour of his body and the work of his hands, we may say, are strictly his. So when he takes something from the state that nature has provided and left it in, he mixes his labour with it, thus joining to it something that is his own; and in that way he makes it his property. He has removed the item from the common state that nature has placed it in, and through this labour the item has had annexed to it something that excludes the common right of other men: for this labour is unquestionably the property of the labourer, so no other man can have a right to anything the labour is joined to--at least where there is enough, and as good, left in common for others. (41) Locke's description of the manner in which property becomes private builds on Aquinas and Aristotle because he agrees that the right to private property is natural to man. (42) However, Locke emphasizes the process by which a man comes to own property and can rightfully call that property his. (43) The process is work--and for Locke that work is integral to asserting ownership. (44) The work annexes or attaches something additional to the land, (45) something which was not present before, something which makes asserting a right to that land the unquestionable right of the laborer. (46)

   A final formative thinker to consider in understanding the relationship between...