affordable housing has become the defining challenge of this generation not only in America but across the world. Home prices have grown so much faster than wages that young people will struggle for years just to save for a down payment. Also, they can struggle for decades to make the repayments on their mortgage. At the same time, we are told that our home is our biggest asset, and the last time the real estate market saw a significant dip, it took the global economy down with it. So can we make houses affordable without destroying the economy? I know the cost of housing is so important to you. We want home ownership to be a reality. We introduced a new incentive program to help first-time home buyers get into the market. According to data from the US Census Bureau, the home ownership rate in America is 65%, so the majority of people have a direct financial interest in not seeing their biggest financial

asset lose its value. This is in spite of the fact that according to a study by the KO Institute, 87% of Americans are worried about the cost of housing, which means there is a big overlap between people who want affordable housing as long as it's not theirs. This means that the only winning course of action for politicians is to performatively make the problem worse. The Biden Administration has announced plans to offer tax credits of up to $10,000 to families selling their home to another owner-occupant, in addition to another tax credit of up to $5,000 to offset mortgage rates for first-time home buyers. These could be used in conjunction with a $225,000 bonus for first-generation home buyers. But if you are a new buyer and get $40,000 worth of extra tax bonuses and grants, all that will do is make affordable housing $40,000 more expensive, which doesn't really make you any better off overall. It is great for existing property owners though.

been tried in other countries like Australia and 
Canada, and it did not work as a long-term solution. Although it did allow for Richard to Air BnB as 
basement and use the proceeds to buy a McLaren. In fact, their real estate market is even more [ __ ] 
than ours. Presumably, the only reason Patrick B. 
has filmed all of his videos in random offices 
and classrooms is because he couldn't afford the 
rent on his flat in London on his modest income 
as a hedge fund manager. Most policies that aim 
to give more purchasing power to new buyers 
really only benefit existing owners, even if 
it does let politicians score some easy points in 
the short term. So, if you can't make houses more 
affordable by increasing people's buying power, 
then the only option left is to make houses more 
affordable by lowering their prices. This sounds 
simple, but it can cause some big problems. If house 
prices collapse too quickly, it can leave people 
underwater on their home loans, where the money.

they owe to the bank is worth more than the house 
itself. This can destabilize the financial system   and the economy that depends on it, because 
it makes lending highly risky if debt can't   be secured against real assets, and some people 
choose to just walk away from their homes. This   can have knock-on effects that will impact every 
ad aspect of your financial life. The people who   will be hurt most by a housing crash are people 
who have only just purchased their first home and   still have a large mortgage on it, since they have 
the smallest equity buffer. Before their mortgage   is worth more than their house, people who have 
owned their home for a long time and have a small   or no mortgage won't be hurt and might even just 
enjoy the lower property taxes. Sacrificing the   people on the bottom rung of the housing ladder to 
let more people grab on isn't a good idea, and it   weirdly doesn't even make houses affordable. This 
was the situation for many American households in

2008. Even though house prices in some areas more than have the actual rate of home ownership over that time also fell significantly, so just making houses cheaper isn't enough to make houses more affordable unless you look at some radical and not so radical solutions that won't be politically popular but just might work. So it's time to learn how money works to find out if you can make houses affordable without destroying the economy. In the process, this week's lesson is sponsored by Brilliant. Brilliant is an educational platform designed for comprehending what you learn. It focuses on a bottom-up learning strategy, starting with the fundamentals using interactive problem-solving activities. Learning and retaining knowledge like this is shown to be six times more effective than traditional video lectures. The courses available on Brilliant are carefully crafted by world-class educators, scholars, and professionals from leading organizations and institutions such as MIT, Caltech, Duke, Microsoft, Google, and more. One of to know how chat GPT works.

brilliant offers a wide range of excellent courses on artificial intelligence, including a course called How LLMs Worked. The course is an immersive AI workshop that lets you experience and harness the mechanics of today's most advanced tools, getting hands-on experience with real language models as you explore how they work. With Brilliant, learning is accessible from anywhere using a computer, smartphone, or tablet. Brilliant provides opportunities to acquire real knowledge in just a few minutes each day with its captivating and enjoyable lessons, seamlessly integrating into your schedule whenever you have time to try everything Brilliant has to offer for free for a full 30 days, visit brilliant.org/howmoneyworks or click the link in the description. You'll also get 20% off an annual premium subscription. There are solutions that could actually make houses cheaper and keep them cheaper, and the political will to take these drastic steps is growing every day. You see this chart here doesn't tell the full story. The spike here wasn't a bunch of new people.

buying a home and then selling it again. It 
was mostly young people moving back in with   their parents at the start of the pandemic. This 
chart only measures the percentage of Americans   that live in an owner-occupied home. It doesn't 
account for if they actually own it. According   to data collected from the US Census Bureau and 
compiled by USA Facts, the number of people aged   between 25 and 34 still living at home with 
their parents peaked to an all-time high in 2020   and has remained near historic highs. Most young 
adults in this age group would prefer a place   of their own, but house prices and rent have made 
it financially challenging for most and outright   impossible for many. So we might soon have enough 
people to start demanding more drastic steps. One   solution that has gained a lot of attention 
in recent years is a land value tax that, as   the name suggests, would charge property owners on 
the value of their land, but not on the value of

the property as a whole. A land value tax doesn't consider the value of buildings and improvements on top of the land. It just accounts for the value of the land itself and charges whoever owns that land a percentage of its value every year, just like you pay a percentage of your income every year. There are details to be hammered out over exactly how much that percentage should be and if it should be progressive like income taxes. For example, someone that owns their family home on a lot worth $500,000 might have to pay 1% or $5,000 every year in a land value tax, but a wealthy landlord that owns 50 single family homes that are collectively worth $25 million might have to pay a 4% rate or $1 million every year. With the right fine-tuning, this system, which was first popularized by economist Henry George, promises to fix a lot of society's problems, including housing. In his most famous book, Progress and Poverty, George argued that a land value tax could be a country's

only tax if it was managed well enough. The name 
of the book sounds about as depressing as your   average How Money Works video, but it became so 
popular in the late 19th century that an entire   political movement grew up around it, today known 
simply as Georgism. Supporters of Georgism make   some big promises, but for now, you only need to 
focus on one aspect, which is that it should make   housing more affordable. Adding a tax to something 
to make it more affordable might be a little bit   counterintuitive, but if landowners have to pay 
a portion of their land's value every year in tax,   they have a strong incentive to maximize returns 
on that land or otherwise sell it to someone who   could. The land value tax on a completely empty 
lot should theoretically be the same as the land   value tax on a lot next door that has a 50-unit 
apartment building on it, collecting 50 sets of   rent. The owner of the vacant lot is motivated 
to either sell their land or build something on

it to generate income to offset the tax that they are paying to own the land because they pay the same tax no matter what. This could act as a way to discourage vast land holding purely for capital appreciation because it makes it a lot less profitable to sit and hold on to empty real estate. A broad land value tax could also offset income taxes, which means regular working people will have more disposable income to put towards buying houses. Traditional Georgism actually argued that a land value tax could replace income taxes entirely, but even if you don't believe that is possible, it would still help. If the average house is worth $1 million, that is not actually a problem if the average worker is making $250,000. But in reality, house prices have massively outpaced increases in wages since the 1970s. A land value tax could rebalance this in three ways. The first way is by reducing income taxes since the government would get an alternative source.

of Revenue. It's up to you to decide if they would really pass that along though. The second way is by making real estate a less attractive Buy and Hold investment, pushing more supply onto the market by getting people to actually do something with their land instead of treating it like a Buy and Hold investment. The third way it could close this widening gap is to encourage people to invest into actual businesses that make stuff and employ people, rather than buying and holding land. More business investment instead of more real estate speculation should increase worker productivity and by extension wages, closing the gap between income and house prices. Perhaps the best part of all of this is that it can be done slowly so that house prices don't collapse overnight, which would just make things worse for regular people. The challenge with this is political. People don't like taxes, and without sitting everyone down and forcing them to read the work of Henry George, you are going to struggle to sell this to voters when big landowners can easily lobby against

it by talking about poor hardworking farmers and retirees that are going to be forced out of their home by another tax. The moral justification of a land value tax is that a country belongs to the people, and if you specifically want the exclusive use of a bit of that country as your own private property, you owe a little bit of rent to everybody else in the country for using land that belongs to them. It makes sense, but it's not going to be politically popular. It is also more government interference in the free market, thumbing the scale in favor of one type of investor over another, but that's actually the point. Even if widespread land value tax is never going to happen, at the very least taxes that currently favor real estate over business investment should entirely be scrapped. Real estate-specific government perks like 1031 exchanges, reduced capital gains, opportunity zones, negative gearing, passrs, deferments, deductions, tax credits, home buyers plans, government back

mortgages and home office write-offs are all kind of like a negative land tax, which shifts government incentives in favor of hoarding as much land as possible. With this many perks, you shouldn't really be surprised that people buy real estate as an investment. The other weakness of a land value tax is that it assumes that people with land holdings wouldn't already be building housing on them to maximize their rental income if they could, but they can't. So the second solution to making houses more affordable without destroying the economy is simply to build more houses. Zoning, NIMBYism, HOAs, a long list of confusing codes, and a lack of skilled tradesmen has made building a home a major ordeal. The sign of a successful economy is that it can produce things like a computer, a car, or a house efficiently and for a competitive price. We have convinced ourselves that houses are somehow special and that them being limited and expensive is a positive characteristic. According to Census Data, America is building fewer houses today than we were in the 1970s.

though our population has almost doubled. Building houses does more than just increase the supply of an essential commodity. It also gives lots of jobs to lots of people because Building Homes and the utilities that support them require real Hands-On work. Now just building more houses won't solve all of our problems. American cities have a major problem with urban sprawl. Building a house an hour away from a city center with no public transport or local amenities just replaces one problem with another. But we can fix this by building medium-density housing for people who just want a decent place to live. People are pro-new medium-density home construction nationally but are anti-construction locally. According to a survey conducted by the US Census Bureau, home equity is simply considered as most households' most significant asset, so most people don't want housing supplies diluted, especially in their local area, with cheaper alternatives. I don't think I really need to convince you that building more houses to fix a housing shortage is an

important step but it probably won't be enough by 
itself. China has built more houses than any other   country on the planet in the last 20 years, and 
they have homes that are even more unaffordable   than ours. Yes, they have a lot of people, but they 
building spree more than made up for this. China   built so many new homes that thousands of new 
developments and millions of apartments are   sitting empty in so-called ghost cities that 
exist just for people to own a home. In China, a   home is not just people's biggest investment; 
it's their only investment. According to an   analysis by JP Morgan's private banking division, 
Chinese real estate was the single largest asset   class in the world as of 2021, and that's exactly 
the problem. It was a financial asset first and a   place for people to live second. A lot of the 
housing constructed in China in the last 20   years, you couldn't even live in. It was an empty 
concrete box with no utilities and a tower with no

people it was a financial asset in the world's 
biggest filing cabinet but learning from those   mistakes can show us the third way to make housing 
affordable without destroying the economy. China is   experiencing a significant slowdown because of 
how much emphasis they put on real estate as a   financial asset, but here in America we are making 
the same mistakes. Companies are turning family   homes into financial assets that can be bundled up 
and traded on securities markets like stocks, bonds,   or options. According to data from Redin, investors 
purchased more than a quarter of affordable homes   sold in America last quarter, which was an all-time 
high. Investors include anybody from someone   purchasing their first investment property all the 
way up to Invitation Homes buying their 100,000th   home. The number of single-family homes owned by 
large corporate investors is still less than 2%   of total housing stock and a small share of home 
purchases, but before COVID, it was less than 1%.

whatever the investor looks like real estate has become too attractive as a financial asset because rents are high and the government has demonstrated that they won't let prices fall precisely because the real estate market has become too big to fail. Def financializing real estate could be as simple as an outright ban on corporate ownership of family homes. If my community polls are an indicator of national sentiment, it's one of the first solutions that would be politically popular. Just reining in lending could also put the brakes on property investors who see real estate as a way to leverage their way into an overnight fortune by extracting rents rather than investing in something productive. To be fair, the financial system is just as guilty. If you want to take out a 5 to 1 leverage position to start a business that will employ people, a bank would laugh you out of a branch. But ask for a 50 to 1 leverage position on a home, and you will have Financial.

firms fighting for your business. Now, I am going to be writing an op-ed about what happens if we let house prices keep going up over on my free email newsletter compounded daily. You can sign up to read that using the link below. Now, the bonus Force solution to unaffordable housing is to fix our overly complicated tax code. So go and watch that video next to keep on learning how money works.

Can We Make Houses Affordable... Without Destroying the Economy?

Subscribe to learn about business, careers, and everything else about How Money Works.

Can We Make Houses Affordable... Without Destroying the Economy?

Can We Make Houses Affordable... Without Destroying the Economy?

Scripts