Millennials, Zoomers, and SALSA: Just Radical Enough

by Jun 30, 2020

What is SALSA

There are few proposals where an undergraduate Marxist1 and the CEO of a high speed train company would see eye-to-eye, but Self Assessed Licenses Sold via Auction, or SALSA, (previously known as Common Ownership Self Assessed Tax, or COST) might be one of them. SALSA is an idea proposed in the first chapter of Glen Weyl and Eric Posner’s Radical Markets, and it was my, and many others, favorite chapter — but it was also the chapter most likely to be called impossible and “too radical” by readers.

The Marxist resents landlords because he sees them profiting off of land which gains its value from the community who dwells and works there, and speculating on homes which should be rented or sold more cheaply to those who need them, and not held as investments or as AirBnBs. The Marxist sees too few houses and too high prices — and he is right.

The CEO of a high speed train company sees land that is not being put to its most valuable use, and landowners who will hold out and cause her court troubles and nasty payouts — all before she can build something that this community badly needs and will value highly.

SALSA would fix both of these problems. SALSA is a legal system that would have all owners of property — for now let’s just stick to real estate — self-assess the value of that lot or building and pay a fixed percentage of that as a tax. The twist is that anyone can immediately buy the property at the self-assessed price, which would be listed on some publicly available database, which forces owners to assess the price fairly. If they assess low, they will get to pay low taxes, but someone might buy their property at a steal of a price. Assess too high, and no one is likely to buy it, but taxes become steep.

SALSA elegantly solves several problems at once:

  • Eliminates bureaucracy and is self-enforcing: no bureaucrats are needed to assess home value, and less need for the IRS to inspect whether property taxes were paid fairly because everyone in the system has a clear reason to assess correctly and can be “punished” (by having their property bought at an unsatisfying price) by others in the system if they assess wrong.
  • Allows for more big construction projects with less fear of holdout or the need for eminent domain: Right now, large infrastructure projects — trains, affordable and ambitious new apartment complexes, business centers — are all blocked by holdout from homeowners. These projects could vastly improve the affordability and livability of cities, but developers cannot easily buy land without a lengthy process that leaves many unsatisfied. SALSA allows for people to be fairly compensated to give up their homes, eliminates the ability to overprice a home to stop a project — or at least forces the owner to pay higher taxes for that privilege — and allows for a transparent and streamlined approach to development.
  • Lower home prices: Home prices will decrease since sellers will be forced to assess their property more accurately — otherwise they will have to pay hefty taxes. Weyl and Posner estimate that asset prices could fall by as much as a third to two-thirds from their current levels.2 This will allow more people to own homes and businesses, and to take on less (or no) debt.
  • Revenue from SALSA could be used to fund a Universal Basic Income: The revenues from SALSA would be substantial and could fund a UBI or some other costly program. A UBI would give everyone a safety net, and might make society more welcoming to the otherwise perhaps frightening idea of SALSA.

But it seems to create several problems of its own:

  • Potentially creates more instability in the lives of the poor than the rich: Some worry that this scheme would allow the rich to simply buy up all property.
  • Potentially discourages investment: If property is constantly being bought and sold, some worry that there will be little incentive to improve or even maintain one’s property.
  • Involves changes so radical that they are unlikely to ever be implemented: Finally, even for those who believe that SALSA could make a positive impact, they wonder if its design is too radical, making it unlikely to ever be put into practice. They might believe that other housing reforms, even if more modest, have a better chance of gaining political approval.

This essay will mainly address the third concern, but I will briefly touch on the first two. This system would not necessarily — or even likely — be worse for the poor. While the wealthy could purchase plenty of property, they would have to pay very high taxes to maintain it. Also, every person whose home was purchased would be compensated at the amount they assessed it at, meaning they should receive a fair price. Right now, the current way most people lose their homes is through eviction — where in contrast to SALSA, they walk away with nothing. This new system is also likely to make home ownership more affordable, which will enable more low income individuals to own homes. It would also make home ownership less of a way to build one’s wealth. Home-as-investment has driven prices in such a way that it has prevented many Americans from accessing home-as-tool — a way to keep one’s family sheltered and safe. It would force Americans to build wealth through more productive means than sitting on single-family land plots, through innovating and building useful tools, their labor, and investing in promising projects.

SALSA would also remove one barrier to developing large, affordable housing projects. Another barrier that SALSA does not touch is zoning regulations, which may be even more detrimental than holdout in preventing construction. These regulations may need to be overridden by the state or federal government. There have been multiple proposals aimed at this issue at the state and federal levels–as well as private sector solutions to dampen homeowners’ incentives to oppose new housing– but none successful on a large enough scale. Zoning is an incredibly important issue, and not one that I will be able to address in this short article — but it is important to acknowledge that both holdout and zoning prevent the construction of valuable property, and both need to be addressed.

Finally, if taxes were used to fund a UBI, low income individuals would be in a much better place than they were without SALSA.

As to investment, that’s a matter of how high the tax is set. Taxes would have to be set at a rate lower than the turnover rate — ie, the percentage chance that someone would come along who wanted to buy the property at the listed price — to make investment still worthwhile.

Both of these concerns are addressed more fully here and here.

But even if SALSA is good for the poor and allows for investment, does it have a chance of getting implemented? Yes, because it is perfectly suited to the rising generations who would vote it in, implement it, and live under it: millennials and zoomers.

Toast and Resentment

It was 2017 and a multimillionaire had just told the audience of Australia’s 60 minutes that millennials can’t afford homes because of “buying smashed avocado for $19 and four coffees at $4 each.” As someone with a penchant for overpriced cafe concoctions and who is unlikely to own a house anytime soon, the comments hit home (no pun intended). Something is wrong with my beverage choice, but worse is what’s wrong with the housing market in the United States.

While I’m sure it is similar in Australia, I will speak to the country I am more familiar with: For over a decade, home ownership has been declining. Whereas the median price of a house has increased 121% since 1960, the median income only grew 29% over that same period. Home prices have also increased most in places with the most economic opportunity — putting individuals in a difficult situation: go where the good jobs are or where you can afford a home?

Around 30% of Americans rent their homes. In major cities like New York, Los Angeles, Chicago, and Houston, renters make up the majority of the population (64.6%, 60.1%, 51.5%, 53.6% respectively) — and in some cities, the percentage hovers closer to 80%. For millennials, the percentage of renters is much higher: A 2019 report by the St. Louis Fed found that “millennial households are covered by the age groups 25-29, 30-34 and 35-39, with rental rates of 67.1, 50.7 and 41.1 percent, respectively. The under 25 bar is the tallest, showing that 77.1 percent of very young households rent.” Statistics are only available for millennials, since the oldest Zoomers are just graduating college — but it’s likely that they will have an even higher amount of renters since the US is experiencing a severe housing shortage and housing prices are rising faster than incomes in most major cities.

Since homeownership is out of the question for many Americans, particularly young ones, they are forced to rent. And even renting is often borderline inaccessible. A 2018 report by the National Low Income Housing Coalition found that

“a full-time worker in America must earn on average at least $22.10 an hour to afford a modest two-bedroom apartment without paying more than 30% of their income for housing. This rate varies across communities… to rent a reasonable two-bedroom unit in Washington, DC, a worker must earn $34.48 an hour, while in Oklahoma that wage is $15.41.”

Another report, this one by the US Department of Housing and Urban Development in 2017 found that “more than 8 million households with very low incomes pay more than 50% of their household income for housing costs.” Clearly, something must drastically change in the US housing market — and SALSA could do exactly that.

The most compelling solution to fix the housing market, and much more, that I have heard is SALSA. SALSA has the potential to restructure our entire system of private property, and to blur the lines between private and public while still preserving efficiency, individual rights, and the distributed wisdom of the market — with no guillotines or soviets involved. And it might just be radical enough for young people to get on board.

Could SALSA Help?

Would SALSA really help zoomers and millennials own homes? Even if SALSA reduced prices, these generations might not have the cash to buy a house in the first place.

First, lower house prices likely would help young people buy homes. There would remain a pool of renters made up of people who simply do not yet want to own a home and those for whom it is still financially unattainable. But these people would also be in a better place because of SALSA. Firstly, they would benefit from the development projects that SALSA enabled, whether those be high-speed trains, new roads easing congestion, or high rise apartments. SALSA will likely lead to the building of more housing, as it discourages NIMBYism, meaning that rent would become more affordable too as the supply of rental units increases. Finally, renters would receive the universal basic income from SALSA revenue, making them financially better off. A society with SALSA is clearly better for both homeowners and renters.

The Benefits to Zoomers, Millennials, and More

Financial

SALSA would provide financial benefits through allowing more people to be able to afford homes, leaving them with more affordable — or possibly no — mortgages. The flip side of course is that home equity declines. That being said, this decline is likely compensated — at least for the middle and working classes — via the UBI. This UBI could be quite substantial, possibly as high as $20,000 a year for a family of four.3 There are also huge financial benefits to the dynamism created by SALSA, and the profits from all of the valuable projects that were previously hindered by an inability to repurpose property to more valuable uses. Weyl and Posner estimate that national economic output would increase by 5%. It could also be used to eliminate more inefficient taxes: they estimate that about half of the revenues from SALSA would be able to eliminate “all existing taxes on capital, corporations, property, and inheritance.”4 Thus SALSA brings more affordable homes, a comfortable UBI, a more efficient tax system, and a larger economic output.

Societal

If SALSA expands access to housing through the mechanisms I indicated above, then it will hugely improve the lives of all those newly housed individuals and their communities. For children especially, homelessness and housing insecurity cause “mental health problems, developmental delays, and poor cognitive outcomes,” and children with stable housing are “less likely to repeat a grade and less likely to drop out of school.” Stable housing is also connected to reducing “child separations, domestic violence, and psychological distress.” Would housing under SALSA count as “stable”? While life under SALSA would likely see property change hands more often than it does in our current system, it would still happen relatively infrequently for any given family. SALSA would also provide for a reasonable amount of time for families to move out and find other housing, perhaps even several months, so it would be nothing like the instability of homelessness or an eviction.

City feel

There are many neighborhoods of Seattle and New York where large houses and luxury apartments sit empty. It ruins the lively feeling of the city just as it stands as a painful reality of inequality when juxtaposed with the homeless camps usually only a few blocks away. SALSA would create a better city feeling since holding property empty will no longer be as secure or profitable of an investment.

Some might worry that SALSA would change city-feel in a different, more negative way: what would happen to historic neighborhoods? SALSA would not necessarily destroy historic neighborhoods, but it would put a higher price on maintaining their stasis. If residents wanted to ensure that their historic property was not bought by someone who wanted to change or update it, they would have to price it high and pay a correspondingly high tax. Perhaps community members could even crowdfund this tax through their neighborhood or homeowners association — and then those funds could help the city pay for what it needs in its current era (which might not be ornate, single family victorians, although their existence might well be positive and give a city its distinctive feel.)

Discrimination

While legal segregation and de facto segregation through redlining have largely ended in the US, housing is still plagued by racial bias. Real estate agents, mortgage lenders, and homeowners associations engage in lots of implicit (and sometimes explicit) bias and other discrimination that “steers” black families away from wealthy white neighborhoods [5]. SALSA is a much more transparent mechanism for finding and purchasing housing. Availability and prices would be posted in one accessible location for all to compare. Sales under SALSA are automatic, so a seller would not be able to know the identity of the buyer before their property sold — which would be an important protection against discrimination. Discriminatory individuals or neighborhoods could still try to value their homes at inflated prices to keep low income buyers (which in the US, often translates to POC) out of their neighborhoods, but then at least they would be quite literally paying a tax on their racism. Alternatively — since many would still find this behavior unacceptable — it could be stopped using other anti-discrimination laws outside of SALSA.

Fairness and SALSA: Something only the desperate would accept?

Perhaps transient millennials and zoomers are fine with SALSA, but won’t their opinions change when they become wealthier, older, and want stability around their home? Maybe. People’s views do tend to become more conservative with age, but that does not necessarily serve as a comment on the desirability of a policy.

Some might argue that while SALSA could be used on new development, there is something unfair or illegitimate about forcing this system on people who bought their homes before knowing about it and expected to own them without the higher taxes and the larger chance of losing them. But these people already live with the risk of losing their homes at any time: through eminent domain. Most people do not consider eminent domain, since the chance of experiencing it is small, but this risk does exist. This is not to argue that eminent domain is right — only that there is clear precedent for imposing real estate rules that are similarly disruptive. In fact, SALSA is much better than eminent domain on two counts:

  1. Compensation: In eminent domain, there is no transparent process for determining compensation and those forced to move are frequently unhappy with their payment. With SALSA, since the owner of a home gets to set its value, whatever they are paid will be perfectly fair — unless they misrepresented their home’s value, and then it will be fair in a different sense in that those owners had been under-paying their taxes.
  2. Democratizing access to the mechanism: Right now, only the government has the ability to employ eminent domain. Under SALSA, any citizen can use the city mapping app to see and buy plots for projects they deem valuable. This also will disincentivize abuse, because any citizen who initiates a purchase knows that their assets could be similarly purchased. If the process is somehow unjust — or violates anti-discrimination laws like the Fair Housing Act and the equal protection clause — the person forced to move could appeal to the government.

Outside of the sometimes amorphous question of “fairness,” a starker question is whether SALSA is legal — specifically, does it violate the Takings Clause of the United States Constitution? While there is some argument that it is legal, which can be read here (83-86), another answer is that we can avoid legal challenges provided that we only apply SALSA in “greenfield” settings, like charter cities, where all property can be initially bought knowing there is a SALSA clause applied to it. SALSA could also initially be applied to government property, like the electromagnetic spectrum. Another answer is that SALSA could be applied to private property, but only after applying eminent domain to gain that property. Some RxC thinkers believe that the only reason to ever use eminent domain, given how politicized and undemocratic it is, is if one is then putting that property into SALSA.

Conclusion

SALSA is much more fair than a system that is already part of our legal code, eminent domain, and provides access to opportunity to a much wider swath of our population. As SALSA becomes better publicized, it is likely to win approval from younger generations as it solves many of their concerns — housing, revitalizing city infrastructure, a stronger social safety net — in one fell swoop. And they might even be better able to afford that toast…

Notes


  1. I say undergraduate in particular because as one myself this is the brand of marxism I am most familiar with. And, while these young radicals are lampooned on twitter and in the press, they usually have some valid critiques.  
  2. RM, 68. 
  3. Radical Markets, 74 
  4. Radical Markets, 74 
  5. https://www.bostonglobe.com/2020/07/01/metro/blacks-voucher-holders-face-egregious-housing-discrimination-study-says/