calculating good

There’s a big scandal in a smaller town not far from my small town. Somehow, city government there let a family live in a city-owned home for free for the last few years. Compounding that, there is talk of selling the home to the family for not much more than closing costs.

There’s an election coming up, and everybody is blaming everybody else, either out of political calculation, genuine outrage or both.

Good. Clearly, someone or ones screwed up, and it’s in the public’s interest to know who and how.

But let’s pause for a moment and consider the matter from a different angle, that being What if letting the family live free and buy cheap is exactly the right thing to do?

First, let me define ‘right.’ I’ll go for a narrow, kind of technical definition – ‘right,’ in this case, means advancing the economic and social health of a tiny, struggling city in upstate New York, that in general has the odds stacked against it.

But what about the bigger ‘right,’ the one that says you reward people who pay their bills, work hard and don’t ask for handouts? Setting aside the somewhat hazy facts of this case – the family says the city told them to hold onto their money – let’s see if we can defuse this definition of ‘right’ by changing one other word.

We’ll call what the city did an ‘investment.’ Essentially, the deal becomes – we, the city, give you, the family, a substantial break up front, in exchange for which you promise to keep up the place, pay your taxes and live in the house.

In some places in America, that would be no deal at all for the public, because housing is in demand. In this particular community, in 2011, I’ll wager that’s not the case. Without checking, I’m reasonably assured you have a fair number of properties either empty, or rented.

There’s nothing wrong with rental, and you absolutely need some apartments in a community, but let’s acknowledge the obvious truth: tenants don’t take as good care of a property as owners  do. Many landlords, who probably don’t live in what they rent, behave likewise, either because they don’t care much about keeping up their  properties to start, or they get discouraged after they see what tenants do to those properties.

So having the owner be someone who lives on the property is generally a good thing. What else can we say in favor of such an arrangement?

Well, it’s an open question whether the city would get a better deal otherwise (i.e. – putting the property up for auction). Maybe it would, but – again – even if city hall got more money up front, a rental is not as good as owner-occupied.

Of course, the property could go to a family much like the family already in the house, so the city would be further ahead by selling the property to the second family, right?

Yes, but maybe not by as much as you would think. In a community where you need jobs and have a surplus of housing, a second (or third, or fourth) family bidding on the house suggests those families already have some sort of reason to be in the community, and will simply find another house from the available stock. Meanwhile, by ‘giving’ the house to the first family (and you’re not, really) you have helped the people who are least closely tied to the community. (They wouldn’t be living in a city house rent free if they could afford to buy their own.) You are one family to the good, if you stick with the original family.

Remember, the community I’m talking about has very little industry of its own now; it survives on government jobs and service employment, for the most part. In such a circumstance, where you live is curiously ambivalent. You don’t have the money to just go anywhere, but you also don’t have nearly as much in the way of traditional ties to the place. Therefore, the job of city officials is very much ‘keep the population up.’

But you don’t need to speculate, as I have, about whether government should be in this subsidy business. It already is, in a big way. Industrial development agencies extend tax breaks and credits, provide long term loans and other incentives to businesses that agree to locate in a given area. Those deals amount to massive government subsidies, offered in exchange for jobs.

Which gets us back to: you may say people are not expected to go to the government for a break, when all they’re offering in exchange is what’s expected of any of us, mostly – pay taxes.

To which I say: there was a time when businesses were not expected to go to the government for a subsidy either, and were expected to produce jobs. Other than scale, what’s the difference between subsidizing an individual and a business?

The answer, typically, is ‘moral hazard.’ If you give one family a great deal, what’s to stop everyone else from wanting the same deal, or throwing up their hands at the unfairness of it all, or moving somewhere that hard work is rewarded?

And my reply is twofold: first, the moral hazard fairy has long since moved in with the business development folks, at least in places like small town, upstate New York. I’m sure there are some, but I can’t think of many businesses that do not ask for government help in some fashion to come here/grow here/stay here. (By the way – I’m not saying this is wrong, just pointing out the obvious.)

Second, what’s the bigger moral hazard – extending a deal like this, or letting the community accumulate more troubled housing stock? First, as a practical matter, most people aren’t going to want the deal this family is getting: if someone already owns his home, he’s not likely to trade what he already has in equity, lifestyle, etc. (This might not be true in a growing jobs/housing market; regardless, you can make a simple rule to get around the problem.) Second, most people who live in an urban setting want the best neighbors they can get. Third, don’t underestimate the desire of people to ‘do it on their own.’

My last point: in this same community where there is much outrage about a family ‘living free,’ the state is keeping a prison open simply as a way of providing employment. Yes, there was some hand waving about ‘New York needing its prisons’ but no one, no one, understands the prison staying open as anything but subsidized jobs. So my question is – if we can do subsidies for prisons and shopping malls, why can’t we do it for families?

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