Basic Income and the Housing Cost Problem

Just how should a Basic Income system cope with widely varying housing costs?

Opponents of Basic Income often raise objections based on myths. They may claim that Basic Income is unaffordable — but that’s not true. They may say it will inevitably cause a mass exodus from the jobs market — but that’s not true. They may claim that it will inevitably cause inflation — but that’s not true either! These myths are usually spread by people who don’t understand Economics nearly as well as they like to think they do.

If opponents of Basic Income want to raise reasonable doubts about Basic Income, however, they might want to ask some difficult questions about how Basic Income can possibly be expected to cover people’s living expenses, when housing costs vary so widely from one geographical area to another. Then we can have a sensible, grown-up debate about the real difficulties involved in introducing Basic Income, instead of endlessly discussing the mythical ones.

I’m a big supporter of Basic Income, but I don’t pretend there will be no genuine difficulties involved in deciding how best to introduce a successful Basic Income system. And I’m not shy about debating the more difficult issues, because we’re going to have to debate them at some time, if a full-scale, permanent Basic Income system is ever going to be successfully introduced.

And it is perfectly reasonable to ask how a Basic Income system could cope with wide-ranging housing costs. Obviously, house prices and rents do vary very considerably from one place to another. And this causes difficulties in terms of what level Basic Income should be set at. To set Basic Income at such a level that you could afford to live anywhere in the country, living on Basic Income alone, may be prohibitively expensive. But set it at a much lower rate — and many people might be forced to move away from the area they call home.

There are a range of potential solutions to this dilemma, however.

(1) One of these is simply to set Basic Income at a level sufficient to pay for all essentials except housing — and to have a separate, means-tested welfare scheme for those people who need help with their housing costs.

If you did this, however, the Basic Income would no longer be a true Basic Income. It would not be sufficient to cover essentials, since housing should clearly be considered essential — especially if the country in question is not a particularly warm one.

And if the shortfall were covered by means-tested welfare payments to cover housing costs, that would undermine some of the key potential benefits of introducing a Basic Income system in the first place. It would mean we would continue to require a large-scale bureaucratic system for administrating means-testing. And the means-testing could perpetuate the poverty trap problems we have at the moment, by which people struggle to escape poverty, because as they earn more, they lose some or all of their welfare payments, potentially meaning they are no better off.

Some people do favour such a system, however, because whilst it is something of a compromise solution, it could still enable our welfare systems to be considerably simplified compared to what they’re like at the moment.

People may also see it as a potential stepping stone to a full Basic Income system. You get ‘Basic Income’ successfully introduced, alongside existing housing-related welfare schemes. And then you consider moving on to a true Basic Income from there. During this interim arrangement, however, you wouldn’t be getting the full potential benefits of a true Basic Income scheme.

(2) Another alternative is simply to vary Basic Income rates according to the cost of living in each geographical area. Basic Income would be set on an area-by-area basis, to make it possible to afford some form of local housing in each of those areas, even if you have to live on Basic Income alone. This could be a workable potential solution, but it is not without substantial drawbacks.

One problem would be the potential for fraud. Some people might live in one area, but claim to be living somewhere else where there’s a higher Basic Income available. This then invites the possibility of having government investigators snooping on people to see if they really are living where they say they are. But a Basic Income is supposed to help us to avoid that sort of thing.

Another problem is that such a system can interfere, in an unhelpful way, with how the housing market is supposed to operate. If an area is very desirable and a lot of people want to live there, you can get a situation where there’s a lot of demand for the limited housing stock that’s available. This tends to result in high prices. So, house prices in such an area may be ‘expensive’ — but they’re expensive for a reason.

The high house prices serve a number of important purposes. They encourage people to build more houses, if land is available. They encourage people to bring dilapidated and unused housing back into use. And, quite reasonably, they encourage people to consider moving out of the area, to make way for other people who might have a more pressing reason for wanting to live in that particular area — such as if they have a job in the area.

High prices are the market’s way of discouraging too many people from living there and taking up housing that could be more usefully employed accommodating someone else.

And if the welfare system pays people to live in a high-demand area, to some extent that’s undermining the operation of the market. It can result in a shortage of housing for people who work in the area. And, by adding to local demand, it can lead to house prices being even higher than they otherwise would have been. In other words, this way of coping with high house prices could actually be making the problem worse, by pushing house prices in the most expensive areas even higher.

A further problem is that if Basic Income is higher in some areas than in others, this may encourage more people to move to the most expensive places, so that they can claim a higher Basic Income and live in a more desirable area. And we don’t really want to be encouraging more people to move somewhere that already has a housing shortage.

You can have rules — as there are under some existing ‘housing benefit’ schemes — that stipulate you must ‘have links’ to a particular area in order to be able to claim a housing subsidy there. That’s likely to involve having a bureaucratic system to decide who is and isn’t eligible for such a subsidy. But things could be done that way, if we so choose.

There’s also something of an ethical problem, however. Requiring people to pay tax so that other people can have the bare minimum they require to avoid starving to death or living on the streets is one thing. But requiring people to pay tax to subsidise other people to live in the most desirable and expensive parts of the country, is something else.

And why should one person who lives in an ‘undesirable’ area get a much lower Basic Income than someone who lives in a much more desirable area? That seems fundamentally unfair. We’ve all got to live somewhere, but if someone chooses to live in a particularly expensive area, shouldn’t it be their responsibility to find the means to be able to afford to live there? (3) Another possibility, however, is that we just accept that whilst Basic Income will be sufficient to enable you to live somewhere, it won’t be sufficient, in itself, for you to live anywhere you like. And so, if you don’t have a well-paid job, enabling you to live in an expensive area, you may just have to accept living in a less-expensive area instead.

Some people might object to such an idea, however, and might argue that no-one should be forced to move away from their friends and relatives.

But there is also an argument that if your richer friends and relatives value your company so much, perhaps they should help out with your housing costs. They can help you out financially so that you can live in the expensive area they live in, if that’s what they want — but expecting the taxpayer to subsidise you might seem rather unreasonable to a lot of people. Alternatively, you can all move to somewhere less expensive. After all, you’ll all have your Basic Income to help support you whilst you look for new jobs. (4) What the government and local authorities could do, however, is to have some sort of accommodation guarantee alongside the Basic Income scheme. Under such a scheme, local government or other designated bodies, would simply be obliged to provide you with some form of basic accommodation, in return for a set proportion of your Basic Income, on a not-for-profit basis.

The accommodation would be sufficient, but basic. For single people, it may be a small room, with shared facilities. Or, in the most expensive areas, it may just be some sort of ‘sleeping pod’ in a shared room. Families could be provided with more extensive accommodation, but they would be paying more, of course, as each member of the family would be receiving their own Basic Income.

At least then, Basic Income would be guaranteed to cover some sort of accommodation and no-one would need to be homeless. And no-one would be forced to move away from the area they call home, if they don’t want to.

To live in better accommodation, people will have to move or find some additional means of supporting themselves. But as they earn more, they won’t be losing any of their Basic Income — so becoming better off shouldn’t be quite so much of an uphill struggle as it often is under existing welfare schemes, with most of any extra money you earn being deducted from your welfare payments. Upward mobility, for many people, could be more of a reality and less of a pipe dream.

So, varying housing costs do present a problem for a Basic Income system, but there are viable solutions to this problem — and we should be having detailed, mature debates about which solution would be best and how exactly it should be implemented.