The Sneaky Way the Government is Making You Poor

"Disappointment has followed disappointment. Discovery upon discovery and invention after invention have neither lessened the toil of those who most need respite nor brought plenty to the poor."- Henry George, Progress and Poverty, Ch. 1

The government is making you poor. It isn't doing it by taking your money, though - as a matter of fact, Americans are paying historically low taxes (Link). Meanwhile, poor Americans have watched 47% of their wealth sucked into the abyss over the last 20 years (Link), while the wealthy have watched their incomes triple in the same time period (Link).

Why is this a problem? Inequality isn't just some weird issue made up by a bunch of stuffy nerds, it has serious real-world consequences. Extreme inequality, like we see in America, fuels crime - especially violent crime (Link). Are you scared to let your kids walk to school? One of the best ways to make our streets safer is to cut down on inequality. Plus, being trapped in poverty makes you less happy (Link) and less healthy (Link). It creates social instability, and it's even slowing down America's economic growth (Link). This is a big problem.

So if taxes aren't the reason you're poor, then what is? Research tells us that the biggest driver of inequality is actually land ownership. The more land winds up in fewer hands, the more unequal our society gets (Link / Link2). As a general rule, we can use Real Estate as a place-holder for land. That means owning homes, such as single-family homes or townhouses. It also means owning Commercial Real Estate, such as strip malls.

As it stands right now, the price of every single form of Real Estate is going through the roof. This is allowing the wealthiest among us to snap up trillions of dollars of Real Estate that the rest of us can no longer afford (Link). It’s creating a class of wealthy landowners that get to benefit from rising land values without lifting a finger. The more productive everyone else gets, the more money these people can take from the rest of us.

Let's say you run a small business - a Karate school, for example. You need somewhere to put your school, and it just so happens that there are strip malls all over America with wealthy landowners ready to rent them out. The only problem? Every year, your rent is gonna go up. It’s going to rise just as fast as your revenue will - as a matter of fact, it’s probably gonna rise even faster. That's why more than half of small businesses weren't able to pay rent in September of 2024 (Link).

Meanwhile, houses are getting more expensive while the cost to rent an apartment is shooting through the roof (Link). More corporations are buying up houses, and it's harder than ever for the rest of us to get in on the action.

So what's causing this? And how do we fix it?

Like everything in economics, land works on the principle of supply and demand. The more land you dedicate to a specific purpose, the cheaper it's going to be. When you have more plots of land devoted to housing, then housing will get cheaper (Link). Meanwhile, the more land we devote to commercial uses, the cheaper that land is going to be. Of course, the way that you dedicate land to something is by building on it.

For a perfect illustration of supply and demand, just look at the market for office buildings. Over the last few decades, we built an absurd number of offices, massively driving up the supply. Then COVID hit, and everyone switched to remote work. Now there's less demand for offices and a huge abundance of supply, so we're seeing a complete collapse in the price for these buildings (Link).

The things is, wealthy landowners already know all this. They know they can drive up the cost of rent if they make it harder to build. As a result, they consistently lobby local governments to do exactly that. They add so many regulations, hurdles, and costs that only the largest possible construction projects can be profitable. This way, they can strangle out small-time developers, since it's incredibly expensive to make it through the tangled mess of government regulation (Link).

The first step they take is passing laws that look good on the surface. Why don't we require an environmental review for every new building? That sounds nice, right? Then how about we make it so three different government departments need to approve the review - just to be safe. And every single one of those departments has the right to veto the building if they don't like it (Link). Just to be safe.

And why don't we add restrictions to how tall you can build (Link)? Tall buildings cast shadows, and we don't want too much shade in our cities. So, instead, we'll make it so you can't build anything taller than one or two stories. Unless, of course, you pay huge bribes gifts to the city, then we'll just let you build whatever you want (Link). What, you think that the free market should decide what we build? You think that the needs of a community should decide what we build? You think that neighborhoods need to evolve and adapt so they can be good places to live? That's weird. We're just gonna stop that from happening.

And actually, let's just make it illegal to build things. Sure, the traditional American city had neighborhood bakeries and small businesses, but let's make that illegal (Link). What, you want to open a bookstore and live in the same building? Yeah, that's illegal now. I know that's the way that small businesses have worked for literally thousands of years (Link), but I can charge you more rent if you can't do that. What we'll do instead is create special zones where you can only build houses - we'll call them residential zones. And then we'll make it so you can only build certain kinds of houses, and make it so those houses have to be built on at least 3,000 square feet of land (Link). And if you want to own a small business, then you'll need to go to one of the designated business zones. That way we have less land for businesses, and we can force them to pay more rent.

All across America, buildings like this are illegal outside of designated downtown areas

Circling back to supply and demand, let's look at the results. When you can only build a house on a huge plot of land, you're going to run out of land. That reduces the supply of houses and drives up the cost - just look at Seattle if you want to know what that looks like. When most of a city is off-limits to small business, that means less commercial space and higher costs. Wealthy landowners then get to scoop up all those juicy plots of land and make money at our expense. First they get to make our mortgages more expensive, then they get to charge massive rent to local businesses and renters. Everyone who rents an apartment intimately knows how badly they're getting screwed, but the rest of us only feel it when our favorite restaurant jacks up their prices so they can pay for the latest jump in rent. There's a reason that a burger costs 15 dollars in Seattle - and it has nothing to do with the minimum wage (Link).

So what do we do about it?

"It ought to be axiomatic in this country that every man must devote a reasonable share of his time to doing his duty in the Political life of the community." - President Theodore Roosevelt, The Duties of American Citizenship. Speech delivered in Buffalo, New York. January, 1883.

Thankfully, this problem is starting to get some media attention. On the other hand, the solutions aren't quite as popular as the idea of fixing it. Most of our national media figures only like talking about big-ticket topics like immigration or inflation. Meanwhile, the only people that actually have the power to do something about this are boring, local officials that most of us take for granted - your mayor and city council.

Your city government is full of individual people, and people only know what other people tell them. Right now, your city council is only hearing from wealthy landowners who like the status quo. If we start making some noise, however, then our city governments will start taking steps in the right direction - in fact, some cities already are (Link).

If you care about this, then what should you tell your mayor? First of all, we need to put a bandage on the wound. America's working class is hemorrhaging money - at this point, the poorest among us have lost almost half their wealth since 2001 (Link). The middle class lost about 20% of their wealth during the same time period. Meanwhile, just 1 percent of Americans own 40% of the real estate (Link). We need long-term solutions, but we also need to stop the bleeding.

The first step is to cut the red tape. Right now, 24% of the money spent building new houses goes straight to government fees and regulations (Link), but that price jumps to 40% for multifamily homes like townhouses and apartments (Link). City governments mandate everything from arbitrary departmental reviews to a minimum number of staircases. This regulatory burden is strangling our towns. This is the first band-aid solution - cut the red tape.

Red tape is just one problem, however. As we established, it is straight-up illegal to build in most of America. Cities have created exclusionary residential zones where you're only allowed to build one kind of building - single-family homes. Traditionally, American neighborhoods used to follow a pretty standard pattern (Link). There would be a public space, such as a park or town square. Nearby, we would build a few different kinds of housing, such as a few single-family homes, an apartment building, and some townhouses. Lastly, we would make room for local business, such as coffee shops and tailors nestled right in with those apartments and houses. This is called Traditional Neighborhood Development, and it's illegal in most of America. We need to bring it back. If de-regulation is a band-aid solution, then this is like putting stitches on the wound.

American towns have enough room for everyone. Our neighborhoods used to be living, breathing communities that could handle anything that came their way. We can have that again. We don't need to segregate society between the rich and the poor or the landowners and the renters. We can fix this.

Is this an issue you care about? You can do something about it!

• The smallest step: Send an e-mail to your city council and/or your mayor. Tell them that this is an issue you care about and you want them to take action. Not sure what to say? Here's a great e-mail guide to get you started - Link.

• Taking the leap: If you're passionate about helping your community, then try calling your mayor or city council. Not sure what to say? Here's a great guide to walk you through it - Link.

• Not sure who to contact? Here's a great resource to find out who represents you in government - Link.