With elections coming in the US, affordability of healthcare and housing are the hot-button topics dominating policy discussions.
July 29, 2019
By: Bobby Casey, Managing Director GWP
With the elections coming up, there is a lot of talk about what people can “afford” and how that connects with “living wages”.
It’s obnoxious because the political solution to political problems seems to be that businesses need to pay for it or fix it.
If people can’t afford something, it’s the business’s fault for not making it more affordable. Or it’s the employer’s fault for not paying their employees more money.
What people conveniently overlook is that businesses tend to only spend money on that which is worth their while. Which means, they won’t keep producing things at margins that don’t make sense to them. Likewise, they won’t hire people at rates that don’t make sense to them.
Regulations, permits, and licenses are sold through to the public is urgently necessary because without them, we’re all going to die. People are also told that taxes are necessary for roads and helping the poor.
Politicians also say that the employers are too stingy and don’t pay their employees enough. People sympathetically agree, until the price of what they want goes up.
People buy into this, but don’t actually want to pay for it. Two major areas where we see this is in housing and medical care.
Healthcare
Back in 2017, I did a piece about how universal healthcare on the state level couldn’t get off the ground. Even in incredibly blue states like Vermont and California, Democrats rejected the bills on the grounds that they were untenable fiscally.
Kaiser Family Foundation did a survey earlier this year on the popularity of universal healthcare, and the numbers were high in support of a “Medicare For All” program.
When it came to “guaranteed health insurance as a right to all Americans”, and “eliminate all health insurance premiums and reduce out of pocket health care costs for most Americans”, the numbers were overwhelmingly in favor of universal healthcare.
However, when they were told it would “eliminate private health insurance companies”, “require most Americans to pay more in taxes” and would “lead to delays in people getting some medical tests and treatments”, support dropped off and flipped the other way.
No one wants to hear the voice of economic reason when it comes to their altruistic hopes and dreams. Understandably so.
The issue isn’t that the fiscally responsible DON’T want everyone to have access to healthcare, or any other basic need. It’s that they don’t see how it is meant to work without indenturing society intergenerationally!
People laughed at Sarah Palin and her claims about “death panels”, but when the stories about Alfie Evans, Charlie Guard, and Oliver Cameron surfaced, there was an interesting response in the crowd-funding efforts to help these children get the care they needed. People could not abide by the darker side of socialized care.
The economic and pragmatic reality of Medicare For All is really that it’s not for “All”. Rather than being too poor for care, you’re now too sick for care. It’s just shifting the spaghetti around on the plate, but ultimately there are people who will not get the care they need.
At the end of the day, there are tough decisions to be made. Weighing the ethics of mortgaging the future and allowing sick people to die is a conundrum ironically begotten by an at least some-what free market. The US is talking about cures and procedures that other countries simply do not have, and their price points. The privilege of having those innovations in our time is humbling. But the fact remains that affordability is something that comes with time, not entitlement.
Housing
Let’s put aside preposterous places like New York, Los Angeles, and San Francisco, and assume they are anomalies. With the calls for higher wages and rent-control as a means to address this national housing crisis, it’s obvious everywhere in the US is affected in one way or another.
The claim is that no one can afford a two-bedroom apartment on minimum wage. The obvious response to that is, get roommates and work toward a promotion.
The subsequent claim is that wages are not rising with the cost of housing, so even those who make more than the minimum wage cannot afford a two-bedroom apartment. A plausible response to that could be supply and demand.
I’ve discussed housing costs in the past but mainly in those unruly metropolitan areas like Los Angeles and San Francisco.
But would you expect that housing is still not affordable in a place like Minneapolis and its suburbs? Not by San Francisco standards, of course, but builders are turning away jobs for starter homes in the $150,000 – $250,000 range.
The average single family home in the Twin Cities area is just under $300,000, and it might be cheaper to try and get an existing home than to commission a new build.
VP of Cardinal Home Builders, Tony Wiener, says one third the cost of new construction is regulatory.
“One third of the total package price, with the land, is in the regulatory costs. Your wetland fees, your park dedication fees, your permit costs.”
The article goes on to show a comparison where the construction costs stay flat, but the land and regulatory costs changed:
Housing First Minnesota partnered up for a study about this topic and broke down the estimated cost of a new house in Corcoran, Minnesota. The estimated construction cost is $182,000. The administrative costs that go into it were estimated at $56,000. The total cost of the home came in at $372,000.
The study estimated the exact same build in the community of Hudson, Wisconsin and the total price was $43,000 cheaper, with the savings split between land and administrative costs.
Another paper out of the National Association of Home Builders has the percentage falling between 14% on the low end and 36% on the high end.
Wages too low and costs too high share a common denominator… the government. Taxing people who are struggling means their net take-home pay is lower. Paying them a higher wage would mean a higher amount of taxes they would have to pay, with their take-home pay still not being significant enough to afford this elusive two-bedroom flat.
The pay-to-play regulations to build new construction to meet demand also isn’t helping to keep costs down.
People defend regulations and taxes as “necessary” for a safe and civilized society, but they simultaneously resent how they increase their out-of-pocket costs. Much like laws, most think that regulations and taxes should be for everyone else, but them. That’s not how politics works, if it works at all.
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