Jonathan Kraut | The ‘Other’ Certainty: It’s Rent

Jonathan Kraut

The old saying goes, “Nothing is for certain but death and taxes.”

I would like to modify this phrase by adding “rent.”

Whether we are charging or paying, rent is the recognition that not everyone can afford the full purchase price to own a home, apartment, or car, but that many are always willing to pay bit by bit over time for the luxury of full use, i.e., rent.

I hope to dispel the notion that all Democrats are in favor of giving everyone extra money in the belief that somehow everyone’s lifestyle and comfort will improve.

Echoing on the news, on the radio, and written columns is the false narrative that cheap and affordable housing would solve homelessness, make life more sustainable, and restore the dignity of working families.

As a result of this belief, our tax money is being diverted to subsidize housing and new unit construction. Los Angeles County, for example, has moved up the minimum wage from $10.50 an hour to $15 and many localities are issuing vouchers for those who cannot otherwise afford a nice apartment.

These formats of economic engineering largely fail because they actually contribute toward raising the cost of housing and rent, not making it more affordable.

Any measure injecting revenue into the rental market increases the costs of rent since higher rents are being subsidized by the increase of funds available to compete for a unit. This means that the millions of dollars handed over to the poor, unemployed, and working middle class will make available more with which to pay and therefor landowners and lessors are charging more. 

The same is true with raising the minimum wage. While I am a big supporter of organized labor, assuming labor leadership resists personal greed and the abuse of power, labor supports a small segment of all workers. But we have observed that giving everyone across the board more income actually makes life less affordable.

Since the minimum wage has moved up over the last few years, has the cost of food, fuel and other necessities have also increased? 

Three years ago, a combo meal at a fast food establishment was about $7.25. Now the cost is closer to $9.25. Because the cost of labor increases, the cost of services and products increase as well. In reality, the extra pay from raising wages actually increases the cost of goods since more funds are available to buy.

I believe we can agree that the costs of housing will continue to rise if many working families have more funds to allocate for housing. When less funds are available, costs go down. This is simple supply and demand economics: When many can spend more, the cost of a commodity will increase as well. 

Also note that not all Republicans are in favor of leveraging foreign trade by imposing tariffs and trade quotas. 

Prior to the days of Trump, Republicans were a “free trade, open market” party. Knowing that the cost of tariffs is passed on to the consumer, Republicans had rightly in the past recognized that the consumers of the nation imposing a tariff on imports actually pay the cost of this tariff through higher prices of these goods. 

The phenomenon of paying more for imports is being experienced right now regarding Trump’s policies toward China. We are paying more to cover the new taxes on Chinese goods. Perhaps in the long term new cheaper supplies will be found, but this might take years to occur.

Now let’s compare these two seemingly separate issues — artificially increasing personal income here at home with minimum wages and housing subsidies, with artificially increasing the cost of imports by adding trade tariffs.

Do you see a difference?

The answer is no. 

Both policies support using artificial means that attempt to manipulate economic conditions. But in fact, both policies make these conditions worse. The GOP and the Dems are pushing policies that create the opposite of the intended effect, albeit one from the supply side and the other from the demand side. 

Making more funds available for housing promotes an increase in housing costs instead of making housing more affordable. Increasing the cost of imported goods over the short term does not save consumers money but simply passes on this extra tax to consumer of the importing country.

Artificially manipulating economic forces is for the most part a failed concept. 

I recommend we support neither party view regarding artificially manipulating economic forces, as both mindsets are destructive and counter-productive.

Jonathan Kraut directs a private investigations firm, is the CFO private security firm, is the COO of an Acting Conservatory, a published author, and Democratic Party activist. His column reflects his own views and not necessarily those of The Signal or of other organizations.     

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