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There are two reasons why I’m now relentless in praising Cutler. One is her inspiring personal story (and talent at telling it)[429]. The other is that her chosen topics of urban planning and housing explain a great deal about why individuals have difficulties rebounding in the Entrepreneurial Age. In my eyes, Kim-Mai Cutler is a pioneer (and one who merits many more followers) in crossing institutional and policy ideas with a deep understanding of technology. In fact, ever since I read her article, I’ve been reflecting on how we can imagine a new housing market for the Entrepreneurial Age.
It’s not that urban housing as a pressing social issue is a new problem. For most of the nineteenth century, the workforce flocking to urban industrial areas was a strain on tense real estate markets and the construction sector. Most of those leaving the countryside for the city were escaping raw poverty, but they still had to settle in what were effectively slums. For working families who could find better accommodations, it was not unusual to welcome a lodger in the spare room to make ends meet[430].
In other cases, employers themselves had to shelter their workers, like was the case for the large department store described in Emile Zola’s Au Bonheur des Dames. Already at that time real estate was spotted as one of the key factors in rising economic insecurity for most of the population. As the self-taught economist and activist Henry George declared about unequal land ownership in 1892, “some get an infinitely better and easier living… others find it hard to get a living at all”[431].
Later in the twentieth century, making housing more affordable was a key outcome of the Great Safety Net 1.0. It was achieved mostly thanks to affordable cars fueled by cheap oil. But there was also the contribution of many institutional innovations: the rise of salaried work; the deployment of social insurance mechanisms; a banking system serving the needs of working families; the stronger bargaining power of trade unions. Equipped with cars and backed by the Great Safety Net 1.0, many Western families in the age of the automobile and mass production could finally achieve what was once the privilege of rich people: settle in their own house, even one surrounded by a piece of land. Obviously not all could afford the dream of suburban homeownership. But the backup plan of subsidized social housing made it possible to accommodate most of those who didn’t earn enough, faced discrimination, or simply had no choice but to live in denser urban areas.
The benefit of the Great Safety Net 1.0 didn’t mean that housing in the twentieth century was never subjected to the occasional crisis. Dense, prosperous cities have always struggled to provide affordable housing to most households, as can be seen in the cases of New York City, London, Paris, or the even more extreme cases of Tokyo and Hong Kong. It has also been documented that urban sprawl, although it contributed to serving the needs of the middle class, was accompanied by environmental damage, longer commutes, and racial segregation—sometimes, as is the case in the US, even supported by the government and the banking system[432].
There have been cases in which governments have been particularly successful in tackling the housing challenge. Germany, for instance, has long made the radical choice of promoting renting at the expense of ownership, making housing more affordable in the process. The rate of possessing property there is one of the lowest among OECD countries: less than 46% in 2011[433], compared to now almost 63% in the US and 65% in the UK.
The continuous existence of a quality, affordable rental market in Germany can be explained by various factors. Laxer zoning regulations favor a satisfactory housing supply. Tenant-friendly rules provide for price moderation and protections for those who comply with their lease. The structure of the more decentralized German banking sector results in a more cautious approach to mortgage lending, which discourages many households from pursuing homeownership. Most importantly, the German approach must be understood in the broader context of homeownership not being the sole source of economic security for German households. Their Great Safety Net works well enough to distract individuals from an obsession with owning real estate.
Housing challenges are increasing now that the global economy is once again clustering in cities, as it did in the nineteenth century. A balanced housing market demands that wealth, jobs, and houses coexist in the same geographic areas. Absent that coexistence, market imbalances pave the way for a variety of economic, social and political problems. One resulting issue is that it is difficult to create jobs in proximity services because those who would do them cannot afford to live where they’re needed[434]. Housing problems also crowd out inhabitants such as artists and entrepreneurs who contribute value as members of the creative class but don’t have the financial security to find proper housing[435]. Above all, a tense housing market widens the inequality gap between those living in cities and those who are trapped far away from them and can’t move because they simply can’t afford the upfront cost[436].
Indeed housing has become a major factor in today’s increasing economic insecurity. In the Entrepreneurial Age, a booming urban economy is bound to experience a crunch when rising real estate prices make living in the city unaffordable for most. No wonder why Kim-Mai Cutler struck a chord writing about it. Among many social topics, she chose to focus on the very one which I think resonates the most with individuals and workers all around the world, from Shanghai to Paris to San Francisco. Imagining a new approach to the housing market has become urgent.
Harnessing the power of regulations to make housing more affordable is a particularly daunting task. Real estate is highly dependent on the state of other parts of the economy such as the financial system, local transportation, and proximity services. Interference by the government is often met by fierce resistance from many players with conflicting interests—and those who have patrimonial or business interests tend to have the upper hand on those who are desperately pushing for lower prices. Above all, any regulatory move on the housing market can only bear fruits over the very long term, usually while simultaneously revealing many unintended, adverse effects. This is a reason why radical change on the urban planning and housing fronts has usually happened under quasi-authoritarian rule and at a great social cost, like was the case with Robert Moses in New York[437] or the Baron Haussmann in nineteenth-century Paris.
Most current debates are not very helpful. Yes, we need to build more and make large cities denser[438]. We should also explore mechanisms to slow down increasing rents. Charity and public housing still have a role to play in alleviating the pressure for those in the most dire situations. And why not, as suggested by Social Capital’s Chamath Palihapitiya, explore the idea of an Equality Fund to redistribute wealth from successful local tech companies in order to finance affordable housing on the real estate markets they’re contributing to drying up[439]. But all those ideas sound like they don’t account for the magnitude of the current paradigm shift. The usual systems of subsidizing construction or imposing rent control are, to say the least, rudimentary in relation to the scale and variety of housing needs in the Entrepreneurial Age.
As for me, it took me a while but I recently came up with what I think is the right framework to reflect on housing in the Entrepreneurial Age. I think most of today’s problems exist because, as Clayton Christensen once put it, “we have the categories wrong”[440]. We’re used to visualizing the housing market in terms of owners vs. tenants, or rich vs. poor, or housing vs. hotels vs. retail vs. office space. Those categories preside over most government interventions on the housing market, notably through zoning rules and household subsidies. But in the age of digital nomads, coworking, coliving, and short-term renting of personal residences, we can see that those categories are no longer sufficient.
My thinking is that in the Entrepreneurial Age the housing market should be analyzed through a categorization scheme that simply separates two groups. On the one hand are what my wife, Laetitia Vitaud, calls the hunters: people who spend a relatively short amount of time in a particular area because they’re hunting for money (as workers), knowledge (as students), o
r experiences (as tourists). On the other hand are the settlers, those who need to have a fixed place of residence for the longer term, one that is attached to a steady job, their kids’ school, or simply their taste for a particular neighborhood that they eventually decide to call home.
Each group is indispensable for the prosperity of a given geographic area. Hunters bring the energy, diligence, new ideas, and money that help large cities thrive. Settlers provide the “eyes on the street”[441], the density of proximity services, and the underlying trust (the “ties on the street”) that make the local culture richer and more welcoming. What’s more, the two groups have many things that they like to share. Settlers can serve hunters, for example by hosting them through platforms such as Airbnb, while hunters can give settlers new connections to the world beyond their neighborhood.
In the past age of the automobile and mass production, the default way of life was that of the settlers. The majority of workers had a job for the long term, which delineated an optimal area in which they should locate a permanent residence. They could then decide on the school their children would attend and buy a home that complied with this set of constraints.
Hunters, on the other hand, were the minority. Their way of life was not regarded kindly. Hunting was tolerated as long as it was a passing phase. You could only be a hunter as a student, then for the first years of your professional life, and then occasionally as a tourist visiting other places.
Some people chose to hunt over the course of their entire lives because they had the money to hop from one 5-star hotel to another. But many others kept on hunting simply because they didn’t have a choice. This was notably the case for many low-skilled immigrants, and their condition was miserable as a result: submission to predatory landlords; the impossibility of reassuring an employer or a bank; being constantly away from their family. This terrible fate of most perpetual hunters explains why settling was the preferred way of life in the age of the automobile and mass production.
The Great Safety Net 1.0 was thus designed to convert hunters to the settling way of life, because only the latter was in line with the techno-economic paradigm of the day. Then during the Dark Ages of financialization even more households felt a need to buy since homeownership became the main source of economic security, with urban real estate appreciation clearly outpacing wage gains (as it is bound to continue doing if we remain in our current environment).
But as for the Great Safety Net 2.0, that of the Entrepreneurial Age, it should have the opposite goal: to help settlers reverse back to the hunting way of life that provides them with the best jobs and the most opportunities. That’s because in the Entrepreneurial Age, the urban world has been turned upside down. Nowadays our working life has become a constant hunting trip, with the many switches, overlaps, and unexpected events that you can count on in such an experience. And those who thrive and win in the Entrepreneurial Age are precisely individuals who embrace hunting as a way of life.
Technology is easily harnessed to help people become better hunters, as shown by businesses such as WeWork (which can provide an office desk in many cities), TransferWise (for seamless cross-border money transfers), Airbnb (to find shelter wherever you travel), and obviously Facebook (which has the power to connect you with almost anyone in the world). Technology is also a way to solve the loneliness problem that used to affect hunters in the past. Now they can hunt as a pack, connected through the networks that turn lone individuals into the powerful multitude.
Settling, however, is here to stay. Many hunters, however successful, will eventually be subject to constraints that will lead them to settle. One such situation appears when people get married. Having a spouse greatly multiplies your set of constraints. Your partner now counts on your steady income. And whenever you want to move and take up hunting again, it means that your spouse has to give up their current job if they want to come along. Then obviously the next set of constraints that reinforces the need for settling comes with having children.
One way to mitigate the risks that come with the need to settle would be drafting zoning rules that favor the constant mingling of hunters and settlers, rather than doing the opposite (as they currently do). There wouldn’t be a crisis of suburban housing if suburban areas were attractive for hunters—which they aren’t. Likewise, there wouldn’t be a crisis of urban housing if it was easier to settle in such areas.
The stakes are high. New legal frameworks should make it possible to harness technology and achieve a radical upheaval of the way of life for both adventurous hunters and settling families at every level of the income ladder. If they fail to accommodate both populations, the danger is for every large city to be inhabited only by very rich hunters and very old settlers.
For hunters, housing should function more like the hospitality industry. Like hotels and Airbnb rentals, real estate professionals should approach hunters more as customers. They should provide them with the agility they need while being frequently in motion—all according to their preferences and their earning power. As a diverse group, hunters need lodgings of all sizes, targeted at the various ends of the market. Some would want a place of their own while others could want to share with others. They could opt for something impersonal or a place with character. They could be there on a part-time or full-time basis.
The convergence between housing and hospitality is already happening. Young professionals form a hunting vanguard, as they have a more nomadic life and frequently adopt alternative mechanisms such as co-tenancy, coliving, remote work, and even plain nomadism. But this trend hasn’t yet translated into an upgraded regulatory framework for the entire housing market. We continue to regulate housing like it’s only meant to provide permanent shelter for stable families. Meanwhile what hunters need is a well-furnished place where they can reside as long as they have a reason to be there, where they can have access to many relevant services, and that they can leave in an instant when they’re called elsewhere.
A market like that is easier to regulate with the goal of affordability, because the interests of workers and employers are very much aligned. Hunters could get used to finding housing through dedicated, data-driven marketplaces targeted at professionals. Employers could also take charge by providing their employees, including less educated workers, with affordable housing—just like some employers did back in the nineteenth century (this practice, by the way, is still widespread in the public sector).
As for settlers, they have very different needs from the hunters. For them the goal should be to harness technology to recreate the spirit of community that was once found in villages. A village is people knowing and, above all, trusting each other. In turn, this trust enables the pooling of resources so as to cope with certain needs in a more customized and affordable way. For settlers, technology can be harnessed to make energy more affordable, to improve the quality of transportation, and to provide access to proximity services such as schooling, childcare[442], elderly care, cleaning, maintenance, and at-home delivery—all services that mitigate the adverse consequences of having to settle.
Embracing the new categories of hunters and settlers is in the interest of real estate operators. For them, it’s a matter of diversifying their revenue model. Hunter housing is a high margin/high capital employed business because hunters expect quality and won’t themselves invest in repairs or refurbishing. Meanwhile, settler housing is more of a positive cash flow/low investment business because the residents themselves tend to invest in maintaining the asset. And so from a financial point of view, providing housing for both categories in the same lot is a financial optimum.
Likewise, mixing hunters and settlers is in the interest of local governments. In 2016, Kim-Mai Cutler aimed at reviving Henry George’s idea of a land tax. As she explained, “if an owner wanted to develop their property to make it more useful or productive, George argued that they should have the right to keep the value from those efforts. But increases in the value of underlying land were created by �
�� and ultimately belonged to — the public at large”[443]. The idea is that in the more attractive areas, the higher land tax would generate public revenue to invest in more amenities, better infrastructures, and denser, more affordable housing. With a well-functioning land tax, attracting a diverse population composed of both hunters and settlers would be not only a matter of inclusiveness. For local governments, it would also be a matter of maximizing business revenue derived from local real estate, and getting hold of a slice of that revenue.
Ultimately we must imagine a new approach and encourage a more mission-driven housing market. Today’s approach to urban planning and housing is upside down, as are many institutions designed in the age of the automobile and mass production. And so we should radically revisit our understanding of the categories on the housing market. Now there should be the land, and the land tax we should levy upon it. And there should be the things constructed on the land: buildings augmented by technology-powered networked services, with the goal of providing agility for hunters and a sense of community for settlers. We’re still lacking a broad-based political coalition for such an approach. Thus it will take radical imagination, and a great deal of entrepreneurship, to make these ideas more tangible in the political debate as well as in people’s daily lives.
Yes, there are social problems outside of big cities that will persist. But they will be dwarfed by the systemic issues of the Entrepreneurial Age, which take place in urban areas. In those cities, no single land tax, zoning reform or way of harnessing technology will be enough to provide affordable housing for the many in the thriving cities of the Entrepreneurial Age. As in the twentieth century, what is made possible by the new technology of the day (cars yesterday, computing and networks today) needs to be complemented by new institutions—those of the Great Safety Net 2.0.