Curated Living Packages for Low Income Households
What lifestyle package could be sold for a family living near the poverty level?
Adam Neumann, the founder of WeWork, has moved on from offices to homes. He is offering wrap-around lifestyle packages that include housing, recreation, meals, laundry, and more. The bet is that people will value the simplicity of accepting somebody else’s curated consumption package—and that bulk buying will make it enough cheaper to overcome the added coordination costs.
The consumption package that Neumann’s new company offers is swanky. Neumann is trying to make money, and richer people have more of it.
Imagine the same concept in the hands of a nonprofit organization that provides lower levels of consumption at a lower price point. What lifestyle package could be sold for a family living near the poverty level? Is it possible to curate a private nanny-state that provides the consumption needed for a household to rise from poverty, in exchange for nearly all their income?
The goal is to create the healthiest possible environment for living in poverty. People should be able to join the community when they’re broke. Then, they can live in a simple but constructive way that allows them to build wealth. We’ll help residents avoid common traps of poverty—like bad schools, violent neighborhoods, high interest debt, and drug use—so that they and their children can climb the socioeconomic ladder.
The country’s social safety net is built to ensure a minimum level of consumption for anybody who acts in good faith (sort of 1). Unfortunately, effectively navigating the safety net is devilishly complicated. Program rules are complicated to understand, registering requires lots of paperwork and time, and income cutoffs are treacherous. Companies employ tax accountants to minimize their tax obligations. In the same way, our community would provide expertise in maximizing and streamlining government benefits.
Planning the community should begin with modeling feasible after-benefits income for a variety of target personas, then determining what amenities are possible to provide when rent is set to roughly that income level. Given the unevenness of America’s safety net, scholarships may be appropriate for specific situations. In addition, since qualifying for government benefits can take time, temporary scholarships may be needed to onboard new residents. To help residents register for benefits efficiently, arranging limited power of attorney might be necessary.
Planning the community’s amenities will also require understanding the tradeoffs of participating in the market economy versus community-level home production. At lower income levels effective nominal tax rates fluctuate wildly. Meanwhile, home production is hardly taxed. And home production can be more efficient when shared with a community. There may be productive strategies to guide how much workers should work outside the home versus inside. Individuals want to work enough to benefit from the Earned Income Tax Credit, but perhaps not so much that the benefits start getting clawed back. Individuals can trade babysitting, but it would be a shame to not use the Childcare Tax Credit to its fullest. Obviously, care must be taken not to stray from tax avoidance (legal) into tax evasion (illegal).
Choosing the right location—and regulatory regime—for such a community will be important. A balance is needed between a generous safety net, well-functioning government, and flexibility needed to start the community. This is another parallel between running a for-profit company and establishing a residential community.
Rising from Poverty
One might ask, “If the intent is to help families rise from poverty, why cap consumption at that starting level?”
First, nobody is capping consumption. Instead, we’re encouraging a modest level of consumption by selling it all in a bundle. Imagine, for example, that the bundle includes a refurbished Android phone with 5GB of data per month. If a resident wants an Iphone or unlimited data, they’re welcome to buy it. But the “extra” cost (i.e., marginal cost) is high since the Android phone is already included in the rent.
Second, people get rich not by spending but by not spending. The intent of the community is to set the lowest financial barrier to entry possible and help residents grow wealth over time—in terms of money and skills. We can do this by helping the top line of a family’s budget rise while keeping their bottom line in check.
Third, it’s fair to recognize that the intended consumption bundle is more like faux poverty than real poverty. A primary feature of typical, difficult poverty is insecurity. Things like unsafe housing or high crime. Additionally, poverty is usually unhealthy, with worse education and nutrition. Much of the typical rise in consumption as people exit poverty is really investment to get away from these insecure and unhealthy elements. For example, replacing bald tires on a car is more reasonably understood as investment than consumption. The goal of this community is to provide a secure, healthy environment where maintaining a low level of consumption does not jeopardize one’s health or future.
Is This the Projects…2.0?
It’s possible I’m describing a naïve vision of the “projects.” Starting with Lyndon Johnson’s Great Society in the 1960s, the U.S. government built big apartment blocks with a vision of helping poor people thrive – but which ended up as degrading ghettos. How can this proposal avoid the same fate?
First, the communities will be privately operated, instead of being run by the government. That means if it all goes awry, it will stop quickly and at a smallish scale. Government programs often continue long after they have failed horribly. Second, the price point can be flexible. If it’s found that operating a healthy community is impossible based on poverty-level wages, fees can be raised to a more exclusive level. Offering healthy living at 2x the poverty level would still be helpful. Don’t let perfect become the enemy of good. Third, the community’s aim is to be accessible to those with low wages but still attract many residents with higher income. By limiting some overflow effects of poverty – like drugs and bad public services – residents may be attracted who want to live more simply and save more of their income. Alternatively, wealthier residents might be attracted who share the mission of helping raise their neighbors from a low social position.
A perpetual problem with place-based policies for helping low-income people is targeting. Richer people always seem to take the benefits, like squirrels getting in your birdfeeder. This community will follow two strategies to keep it accessible to poorer folks, the intended beneficiaries. First, it will be a rental community with strong covenants that protect renters. Residents will be helped to build equity through investing in financial products rather than buying their homes. If the homes were sold, prices would rise to match the value of living in the community – shutting out low-income folks in the case of success. Second, the rental community should be expandable to satisfy any demand. A key enabler of this will be minimizing reliance on external grant funding for operating costs, which could limit the scale of the community. It is probably unavoidable that grants will be needed for acquiring real estate up front, but those grants could be mostly recouped if a community fails because the real estate could be sold.
A larger discussion about America’s welfare state is appropriate, but that’s not the point here. My only contention is that a minimum amount of income could be squeezed out of most Americans who act in good faith if they fully utilize available governement benefits. Validating this idea about minimum available income and understanding which groups have less available support would be an important part of implementing a private nanny-state. ↩