MMT and the Homes Guarantee

This post is part of our symposium on Stephanie Kelton’s The Deficit Myth. You can find the full symposium here.

In The Deficit Myth, Stephanie Kelton invites us to imagine a people’s economy through the lens of Modern Monetary Theory (MMT). MMT is an economic framework that recognizes that governments with exclusive legal control over their own currency (monetary sovereignty) can never run out of money in the way that businesses and households can. Rather than fixate on the federal government’s budget deficit, Kelton describes real deficits that stand in the way of community flourishing, such as the jobs deficit (structural unemployment) and the homes deficit (the affordable housing crisis). To remedy both of these deficits, we must consider how these deficits are linked and how their respective policy prescriptions must complement each other. Let us start with the jobs deficit. The Job Guarantee, the keystone of MMT’s prescriptive policies, is a federal program that would remedy the jobs deficit by providing a living wage job with a “basic package of benefits that include health care and paid leave” for anyone who wants one in their local community. These jobs would be created by the community for the community and would fulfill several important purposes.

The Job Guarantee would:

1. Replace a system that structurally deprives people of work with one that guarantees a job to anyone who wants one. The Federal Reserve currently has a dual mandate: fight inflation and keep the economy at the “natural rate” of unemployment. In theory, they adjust the interest rate to make borrowing more or less attractive in the economy. When they lower the interest rate (and therefore the cost of borrowing), businesses take out loans to fund projects and hire workers, lowering unemployment. To keep rising wages from causing inflation (rising prices), mainstream economists keep a subset of the population unemployed. Rather than accept permanent unemployment, a Job Guarantee employs everyone who wants employment and stabilizes prices in the economy by setting a living wage.
2. Return control to communities. Communities are experts of their own experience and know what work must be done to care for their families, friends, and neighbors. Under the Job Guarantee, communities will decide how to care for their own.
3. Stabilize the economy. The number of jobs provided by the federal government will be allowed to float. When the economy is strong, the private sector can tempt people away from Job Guarantee positions by offering better compensation and benefits. When the private sector contracts during recessions, the public sector will pick up the slack, providing people with the funding they need to make regular household payments.
4.  Raise the floor on low wage work. The Job Guarantee will offer compensation at a living wage and with a basic benefits package. If the private sector hopes to compete for lower wage workers, they will have to offer better pay and benefits.

Among its many other benefits, the guarantee of a steady income would help households make their housing payments. The COVID-19 pandemic has brought into painful relief the connection between unemployment and housing instability. By the end of June 2020, 51.3 million Americans had filed for unemployment, nearly one third of the entire US labor force.

Furthermore, almost one third of U.S. households missed their July rent payment. Many of those facing eviction in coming months could pay their rent if they had not been laid off. A Job Guarantee could keep some of those people in their homes.

Still, the housing crisis did not begin with the pandemic. The National Low Income Housing Coalition’s 2020 “Out of Reach” report includes the staggering statistic that “[f]ull-time minimum wage workers cannot afford a two-bedroom rental anywhere in the U.S. and cannot afford a one-bedroom rental in 95% of U.S. counties.” The report also puts this year’s “housing wage,” what a full-time worker needs to earn to afford a fair market rental without spending more than 30% of their income, at $23.96 per hour for a two-bedroom and $19.56 per hour for a one-bedroom. If the Job Guarantee paid the housing wage to every person who wanted a job during this pandemic, then every household would be able to afford shelter at current prices. But the problem of affordable housing goes beyond wage stagnation.

Black Americans have always been systematically excluded from decent, stable housing in this country, regardless of employment status. In the past twenty years this manifested in an increasing number of rent-burdened Black households (nearly 55 percent of Black renters in 2019) and the predatory sub-prime housing loan scheme that notoriously led to the 2008 financial crisis. People’s Action, the authors of the Housing Guarantee proposal on which Representative Ilhan Omar’s Homes for All Act is based,  calls mortgage holders “bank tenants” for a reason. Because all homes are subject to the “irresistible” pull of profit extraction, renters and bank tenants alike risk losing the right to live in their home if they miss a payment.

A job guarantee would go a long way toward helping people afford housing by locating living wage jobs in communities with cheaper housing. However, for the Job Guarantee to deliver the stability and prosperity we hope to see in a people’s economy, it should be paired with a guarantee of homes to everyone. Without a Homes Guarantee, real estate developers, mortgage brokers, and landlords will do everything in their power to capture the increased Job Guarantee earnings. Speculators who treat housing as an investment vehicle leave properties vacant to manipulate prices, systematically pushing people into homelessness. Lacking an alternative due to chronically underfunded public housing and a federal government legally barred from building new housing, many people have no choice but to rely on the private sector. Because the private sector has near total control over the housing stock, and housing is so fundamental to life, it is easy for speculators to bully people into paying more and more of their income. If we want our people’s economy to include quality, stable, community-controlled housing for all, we need the Homes Guarantee to provide an alternative to the speculative housing system.

The Homes Guarantee would:

1. Replace a system that structurally deprives people of homes with one that guarantees a home to everyone. It is no mistake that almost 568 thousand people were homeless in the U.S. as of the latest point in time survey. Though there is enough existing housing to shelter every American household, speculators sit on vacant homes to wait for the “right market” to rent or sell. The Homes Guarantee would build “12 million new social housing units over the next 10 years with the goal of providing homes to the nearly 12 million renter households who are currently extremely cost burdened (paying over 50% of their income in rent) and to the millions who are experiencing homelessness.” It also includes the right to sue the Department of Housing and Urban Development for a home after all other administrative avenues have been exhausted. The Homes Guarantee breaks the private monopoly on housing and codifies housing as a legal right.
2. Return control to communities. The Homes Guarantee will provide grants to local governments to re-house displaced people, seize properties from exploitative and predatory actors, and convert those properties to “alternative ownership models” like resident run co-ops and community land trusts.
3. Stabilize the economy. When millions lost their homes in the fallout from the Great Recession, the Federal Reserve refused to provide direct assistance to homeowners. Instead they allowed foreclosed housing to go to auction, where it was bought by private speculators who hold this housing hostage. It should not be up to the Federal Reserve or even Congress to decide whether people have access to affordable housing. The Homes Guarantee would “move public housing operating and capital expenses from discretionary to mandatory spending item.” This would ensure that the federal government spends enough to keep everyone stably and affordably housed, even in a recession. The Homes Guarantee would stabilize the economy by allowing people to continue to spend in a recession without fear of losing their homes.
4. Provide an alternative to speculative housing. People’s Action describes social housing as “a public option for housing.” Social housing charges rents based on “real cost-based or income-based formulas” and is permanently off the private market. If the private sector hopes to attract tenants or home buyers under the Homes Guarantee, they have to offer housing of comparable price and quality.

The Job Guarantee and the Homes Guarantee are two sides of the same coin. The Job Guarantee ensures the flow of income into households. The Homes Guarantee protects that income from predation by housing speculators. Both are vital to building the people’s economy Kelton invokes in The Deficit Myth. Housing organizers and community activists can use the MMT framework as one tool to make their dream a reality.