Chapter 18 – A New Economic System: The third step is housing

In the same way that every human being needs high-quality food and clothing, every human being needs safe and secure housing. There is no question about this – housing is essential.

So how will the new economy provide housing? And how much effort will it take? If food production and service for one million people requires 200 million human hours per year, and clothing requires another 50 million, how much time will housing take?

Let’s note that, under capitalism, housing is becoming a gigantic problem for people across planet Earth. We have already seen that, on Earth, about a billion people are forced to live in slums. This article from McKinsey reports:

“Decent, affordable housing is fundamental to the health and well-being of people and to the smooth functioning of economies. Yet around the world, in developing and advanced economies alike, cities are struggling to meet that need. If current trends in urbanization and income growth persist, by 2025 the number of urban households that live in substandard housing—or are so financially stretched by housing costs that they forego other essentials, such as healthcare—could grow to 440 million, from 330 million. This could mean that the global affordable housing gap would affect one in three urban dwellers, about 1.6 billion people.” [ref]

In the United States, the cost of housing has risen substantially over the last few decades. In 1950, an average house cost about 2X the average household income. Today it is more like 4X, and in urban areas it can be much worse. Rents are rising too, to the point where living in a major city as a “normal person” is becoming difficult. As this article points out:

“Now, America faces a rather dire housing predicament: buying and renting are both unaffordable. Or, as WSJ put it last month, “households are stuck between homes they can’t qualify for and rents they can’t afford.”

We’ve seen evidence of this across the country with perhaps the most telling statistic coming courtesy of The National Low Income Housing Coalition who recently noted that in no state can a minimum wage worker afford a one bedroom apartment.

In this context, Bloomberg is out with a list of 13 cities where single-family rents have risen by double-digits in just the last 12 months. Note that in Iowa, rents have risen more than 20% over the past year alone.”  [ref]

So how can we take a million people out of refugee camps and slums, or one million poverty-stricken Americans out of their low-income housing, and provide them with high-quality housing in our new economic system? As soon as we start thinking about it, we hit a reality with housing: the amount of time required for housing in our new one million person city really depends on the type and size of housing we choose:

  • If one million people each receive a pup tent measuring 4 feet by 8 feet, housing does not cost much. And many people would be miserable, especially when winter arrives. But the unfortunate truth is that, for hundreds of millions of people on planet Earth today, a well-made, dry pup tent like this (along with a safe place to pitch it) would be a significant upgrade in housing. Such is the misery that capitalism bestows on so many people around the globe.
  • If one million people each receive a tiny house with 100 square feet of floor space, this costs more.
  • If one million people each receive a 300 square foot (per person) apartment in a high-rise building, this has a different cost, and a different density.
  • If one million people each receive a 66,000 square foot mansion like Bill Gates, this would be absurd and insane, and it certainly maxes out the cost of housing. Bill Gate’s home is estimated to cost $63 million. [ref]

[One quick tangent: Why is Bill Gate’s house intrinsically absurd? Because, if we assume an hour of human time is worth $20, and we note that Bill Gate’s house cost $63 million, then it would take approximately 3 million human hours of time to build Bill’s house. A human being who works for 60 years at a rate of 2,000 hours per year generates 120,000 hours of work. As such, it takes approximately the full lifetime output of 25 people to build one house for Bill Gates. The only way Bill Gates can have a house like this is because of the absolutely shocking and ridiculous concentration of wealth that capitalism allows today. When we replace capitalism with a new economy, the absurdity of Bill Gates and oligarchs like him will vanish. They must vanish in order for the rest of humanity to live decent lives, instead of living in slums.]

When creating housing, it is important to note that housing has direct effects on human psychology. This article suggests:

“Still, there is some research suggesting that putting people in tightly-packed living situations can affect their well-being. Housing crowding in adults has been linked to social withdrawal, stress, and aggression. Recent research also suggests there might be a trickle-down effect for children raised in these spaces who, theoretically, might find it difficult to find a quiet, private space to read and complete their schoolwork.

Analysis of U.S. data by two Syracuse University professors found that kids who spent high school in crowded households — defined in the study as a home with more family members than rooms — were less likely to graduate high school and complete college by age 25. The study controlled for socioeconomic factors, suggesting that the lack of space had an isolated effect. “Household crowding during one’s high school years is an engine of cumulative inequality over the life course,” wrote the study’s authors. [ref]

In order to think about housing, we need to pick a starting point, so let’s try this: the average single-family home in America today measures approximately 2,500 square feet [ref]. If we assume that four people are sharing a home like this, this is 625 square feet per person. A home like this typically has a living room, dining room, family room, kitchen, four bedrooms and an equal number of bathrooms. This seems quite luxurious, especially when compared to a slum.

Let’s back this off a bit. We no longer need kitchens or dining rooms or breakfast nooks, etc. in our housing, because all of the meals are prepared and served in restaurants. So let’s establish a standard of 300 square feet of housing space per person living in our new city. To put this into perspective, this is enough space for every single person in our new economy to have two 10×12 foot rooms (or a single, very large 13×18 foot room) plus a 60 square foot bathroom.

Therefore: One million people move to our new city, and each one of them receives 300 square feet of new, modern living space, which includes a private restroom for every person. One way to construct the housing would be to create modern high-rise structures as seen in these two examples:

We arrange these buildings in an attractive way with parks, paths, water features, landscaping, retail, entertainment, restaurants, etc. intermingled to make a beautiful setting. This arrangement would be utterly fantastic compared to a slum.

Alternatively we could arrange all of this housing in the form of single-family detached houses at a rate of 10 per acre. In other words, we could model our housing for the new city off the American suburban housing model. There is an fascinating community known as “The Villages” in Florida [ref] that we can use as a template. In The Villages, 150,000 residents live in detached homes on small suburban lots, with the houses arranged in “villages” of perhaps 5,000 homes each surrounding a community center, community square, parks, paths, shopping, restaurants and a golf course. At 10 houses per acre, 1 million houses would consume 100,000 acres of land, or 160 square miles, or an area 13 x 13 miles.

Understanding the cost of housing

How much would a 300 square foot house like this cost, in terms of human time? As a rough rule of thumb, it costs about one hour of human time to build one square foot of housing. So it would take 300 hours.

The house needs to be built of materials: things like shingles, siding, wall board, light fixtures, pipes, air conditioners, carpet, etc. Let’s assume that the amount of human time required to create these materials is the same as the time needed to construct the house, so an additional 300 hours.

The house needs site preparation: roads, water mains, sewer systems, fiber optic cables, etc. Let’s assume 300 hours of human time for these as well.

Now let’s assume that houses in our new city will last for 15 years. After 15 years, we will dismantle and recycle a house for at least 5 reasons:

  1. Fashions and building styles change
  2. Technologies advance
  3. Everything in the house wears out over time, so maintenance costs increase as a home ages
  4. We can design everything in the house to last 15 years, further reducing maintenance costs
  5. People’s housing needs change over time

Even so, some things will inevitably break prematurely, wear out, etc. Let’s assume an additional 300 hours of human time is needed for maintaining and then recycling the house over its 15 year lifespan.

We can see that a single, 300 square foot house requires 1,200 hours of human time over its 15 year lifespan for all aspects of construction and maintenance. This works out to 80 hours of human time per person per year for housing, or 80 million hours total per year on average for the city as a whole. If you think about it, this is a remarkably small amount of time for housing. It is only about 15 minutes per person per day, or less than 2 hours per person per week, or 7 hours per person per month.

A couple of obvious things to note:

  • A couple does not need to live in two 300 square foot houses. They can combine into a single 600 square foot house with two restrooms.
  • Similarly, a family of four would combine into a single home of 1,200 square feet with four restrooms.
  • Individual people and families will have different housing preferences. Some will prefer to live in a single family detached dwelling, while some will prefer to live in a high rise apartment building, and many configurations in between. All of these different preferences are easy to accommodate with different styles of housing, all fitting within the same basic parameters.

How is this possible?

The calculation we performed in the previous section may seem unexpected to you if you think about it, especially if you are living in a developed country like the United States. How can the average “cost” of housing be just two hours of human time per week, when houses in America are so expensive (The average American home costs about $250,000, or about $100 per square foot [ref])?

  • One thing that makes housing expensive in America is that the stick-built construction methodology is inefficient.
  • Another thing that makes housing expensive in America is the rather large mark-ups, profit margins, executive salaries and other wealth-concentrating activities imposed on every part of the home construction process (see Chapter 3 and Chapter 7 for details).
  • Also note that a 30-year mortgage can double the cost of a home depending on the interest rate you are able to get – another wealth-concentrating activity.
  • We also waste a huge amount of time/money on “maintenance” (new paint, new roof, new furnace, new water heater, new fixtures, new kitchen, new… ) on older homes, and the cost of this maintenance really adds up over the years. Meanwhile the base house and its style continue to decay. It makes sense to target everything in the house for a 15-year life span, recycle it after 15 years and put a brand new house in its place. Maintenance work is always more “expensive” than new construction, especially when new construction can be automated.

All of this overhead and inefficiency is completely washed out in the system we are proposing here.

Even so, housing in America may still seem incredibly expensive – much more expensive than two hours a week on average. To understand what is happening, think about it this way. You can buy modular and manufactured housing in the United States today [2018] for approximately $40 per square foot or less (installed) [ref]. Therefore a 300 square foot home can cost somewhere around $12,000:

  • Divided by 15 years, this is approximately $800 per year.
  • Divided by 52 weeks, this is $16 per person per week.

$16 per week, or $64 per month, sounds incredibly inexpensive. Even at minimum wage of $8/hour, this is only about two hours per week for housing. And at the United States’ average wage, it is less than one hour of work per week. We are coming in line with the estimate we have developed for the amount of time required to provide housing for our new city (note that we also included maintenance and site prep in our estimate above). It seems crazy, but this is the reality of the situation. If you are willing to live in small cities in the Midwest or the rust belt of the United States, it is possible to find housing at these kinds of price points.

Can you see what has happened? While it is possible to approach this kind of efficiency in America, we rarely achieve it because of all the headwinds built in to the American capitalistic system:

  • The huge overhead imposed by executives and their desire to concentrate wealth in every transaction that takes place in the economy (see Chapter 7)
  • The overhead of mortgage interest, which can double the cost of housing (more wealth being concentrated)
  • The inflated prices and restrictions on land use, which again concentrates wealth. Cities like San Francisco are notorious for this, and the resulting housing prices are meteoric
  • The cost of maintenance, which is a big deal with so much older housing in America
  • The fact that we use stick-built construction, which is inefficient
  • Not to mention the fact that wage stagnation makes home ownership impossible for a large percentage of Americans, meaning they rent, which further concentrates wealth

The entire system in America has been rigged by capitalism in a most uncomfortable way, and it affects everyone. World-wide, the same kind of processes are at work, meaning that almost a billion of us now get forced into disgusting slums.

Advantages of a new economy

We can see that the new economic model proposed for this book, where people contribute their human time in return for the housing they need, is a fantastic thing for everyone living under this model. To reiterate the advantages mentioned previously:

  • Everyone in this new economy gets access to the high quality housing they need. They can choose their housing from a catalog of possibilities.
  • There is no threat of “losing your income” or “losing your job” and therefore being cut off from your housing through lack of money. Your ability to contribute your time to the economic system to provide for your housing is sufficient.
  • There is no threat from any recession or depression bringing the economy down and cutting millions of people off from the housing they need. No foreclosures, etc.
  • There is no threat of inflation raising housing prices so that people are unable to afford housing. The amount of time needed to construct housing will be going down, not up, as more and more automation becomes available in the construction process.
  • There is no threat from robots stealing people’s jobs and therefore cutting them off from their access to housing. In fact, robots are welcomed rather than feared in this new economic system, because robots reduce the human effort and time needed from the one million residents.
  • The housing production system is not wasting trillions of dollars on huge executive salaries, huge executive perks, private jet fleets for executives, enormous lobbying budgets, enormous advertising budgets, enormous dividends, and so on, as seen in capitalism. The participants in this new economy create their housing by contributing their time to the system.
  • There is no inequality. Everyone in this city contributes a little bit of their time to the system, the software task allocation system equitably allocates all of the tasks, and everyone receives the housing they desire.

Another thing to notice is the relatively small amount of time needed to construct and maintain housing. Just a few hours a month on average will be enough for each person to have modern, safe housing.

By creating a new economy free of capitalism and capitalism’s absurd overhead, we can understand the true cost of housing, and it can be quite reasonable. This is the huge advantage of the new economy we are proposing in this book for everyone on the planet.

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