Before You Write Off Government as Unnecessary, Think About The Housing Market.
The opinions stated in this article are solely those of the author. Make your voice heard on this topic on the Think Realty forums.
I think few real estate investors would advocate for anarchy, but most find, at least from time to time, that governments can make things a little difficult. Usually this takes the form of dealing with permits and regulations, which can be time-consuming, costly, and highly repetitious and frustrating. Perhaps even more high-profile are attempts to tax highly successful businesses at higher rates than other companies and even charge them for extremely profitable years. For example, Seattle’s attempt to tax Amazon and other local companies earning $20 million or more a year $275 per employee and San Francisco’s current proposed ordinance that would retract tax incentives it implemented in 2011 to attract and keep successful businesses in the area after the Great Recession. If the latter passes this November, Twitter, Uber, and many other market behemoths could find themselves injecting an annual $35 million (or more) into the municipal government starting immediately.
I understand the motivation of government regulators to extract more money from companies that have a lot of it. Cities proposing these taxes say that they are necessary because the hugely successful companies that headquarter in the metro areas place a strain on municipal budgets and support has to come from somewhere. Most of these governments are trying to do good and “move the ball.” However, they usually do not see or admit the negative impact from their mandates: they inevitably stunt growth.
The question is, do we really owe our government nothing? Here’s the other side of the equation:
- Our housing market is incredibly resilient precisely because our property rights are so pure, and for that, we can thank our government.
- With respect to private property, government plays a very positive role. Our system is so good that market forces are able to work with minimal friction. For example:
- When title transfers from one owner to another, we have a bulletproof system of ensuring and insuring that the new owner gets to move forward, free of the past. This is huge, and our municipal governments and federal laws get much of the credit.
- Mortgage financing is readily available and ubiquitous. You can walk into a bank like Bank of America or any smaller “Bob’s Mortgage Company” or click on Quicken Loans and get a Fannie Mae loan using the same application process, same qualification standards, and ever-decreasing costs. This is a government program.
- The marketplace of homes for sale is anchored by the MLS, a collective inventory of the majority of properties out there for sale. Every real estate agency wants to kill every other agency on the playing field, but they also cooperate on nearly every sale. Not everyone loves the MLS, but we can’t forget that at the center of our industry is an intricate system of regulations that are decentralized to local markets and governed nationally. The National Association of Realtors (NAR) is another example of this, although it does not serve all real estate professionals directly. The end result is a ubiquitous national inventory of homes for sale that is transparent, accurate, and open to all competitors and consumers. (Compare to commercial real estate and you can see how lucky we are in residential).
The end result of all this bureaucratic structure is a practically perfect real estate market environment:
- Every owner can know what their house is worth in an instant and get professional support for free.
- Every buyer knows what is for sale and, more or less, what it’s all worth.
- No one seller or buyer can impact the flow of the market.
- Because the ownership is so decentralized, manipulation is nearly impossible.
Our government’s solid support of private property rights is the reason Houston, Texas, could take a huge hit to the oil and gas industry in 2014, survive a hurricane in 2017, and still post record home sales and home prices in 2018. There are a million stories like that, where the market prevails, and the market relies in large part of the continued health of our government.