How to Triumph Over Socialism

By James Fenkner, CFA

America is flirting with a dangerous nostalgia. Today, over 60% of young Americans under 30 view socialism favorably—a stark contrast to Russia, where around 20% of the same age group does.

This political divide is no coincidence. It is a five-alarm fire.

The surest way to douse America’s rising flame of socialism is not by blowing more hot air from another lecture on Milton Friedman, but the one remedy post-Soviet Russia itself discovered: turn renters into owners, and the socialist temptation loses its oxygen.

Russian youth don’t spurn socialism because they love Vladimir Putin—far from it. Fewer than half of those born after 2000 would vote for him. Their aversion to socialism stems from family stories of empty shelves, long lines, and the terror of anonymous denunciations. Russian education no longer peddles the divisive Marxist narrative of oppressors versus the oppressed. This toxic curriculum poisoned Soviet society for much of the 20th century. While largely eradicated in Russia, our local government run schools have repurposed this class conflict along racial, sexual, and religious lines, to similar result.

The Firewall Against Socialism: Home Ownership

Today, Russia boasts one of the world’s highest homeownership rates of over 90%. In the U.S., it’s stuck at 65%. In the city of Santa Barbara, less than 40% of residents own their homes. In the five boroughs of New York City, that figure dips to just 30%. Alarmingly, homeownership in America’s most vibrant cities is smoldering toward levels seen in Czarist Russia just before the 1917 Bolshevik Revolution—a powder keg for radicalism.

The consequences are predictable and profound. Renters, squeezed by skyrocketing costs, are fertile ground for socialist appeals. In places such as Santa Barbara or New York City, rent now devours around half of reported median income—more than double the rent burden in 1990. No wonder frustrated voters in these renter-heavy districts call for “inclusionary housing” mandates and rent controls, which only inflate new housing costs and stifle supply. The socialist’s sale’s pitch only grows stronger: If a system has no rung to climb up upon, why not just burn it all down?

In the city of Santa Barbara, homeownership is now walled off to the middle class, especially those who somehow neglected to inherit a trust fund. With median home prices near $2.3 million and household incomes around $100,000, the price-to-income ratio has ballooned to 23, meaning it would take 23 years of income just to purchase the median home. That is nearly quadruple the six years it took in 1990 and more than double the 10 years it took in 2010. Even with a typical down payment scraped together, monthly mortgage payments would swallow 120% of a median salary to purchase today’s median home. It isn’t a surprise that so many young aspirational people who – locked out of any prospect of home ownership – are drawn to socialism’s siren song of “redistribution.”

Financial Anxiety Enhances Socialism’s Appeal

Family formation clearly takes a hit under this scenario. It is long known that renters in high-cost markets delay having children by three to four years. Today, with the median first-time homebuyer now reaching 40 years old, couples are belatedly “nesting” at the age when fertility declines rapidly and viable eggs become scarce.

The absence of any reachable rung on the ladder to success explains the electoral triumphs of progressives in deep-blue enclaves, from New York City to Santa Barbara. They prey on genuine financial anxieties, promising government handouts as salvation. Republicans – if we hope to reclaim these districts and obliterate the socialist surge –must counter with a bold vision: restore the first rung of the property ladder through personal freedom, lower taxes, and unleashed market forces.

Such a lofty goal is not beyond us. Even the Russians figured out how to achieve this after communism’s collapse in 1991.

In the 1990s, Boris Yeltsin‘s government orchestrated the largest housing privatization in history. Every adult could claim title to their state-owned apartment for a nominal fee, with a one-unit limit to prevent oligarchic hoarding. Over a decade, 62 million units transferred to private hands. Former tenants became owners who could renovate, borrow against equity, and pass wealth to heirs. Resentment gave way to investment in the system. Stake-holding replaced strife.

Three Easy Steps

Republicans should borrow this blueprint, pruning back government’s stranglehold to expand ownership without pitting NIMBYs against developers. A change in ownership is not about building more. No hammers needed. No socialist sickles that do more damage either. The free market transfer of existing housing stock into a far greater number of private hands is win-win and transformative.

Here’s how:

First

Privatize public housing. In Santa Barbara, the county and city housing authorities control thousands of units—about 10% of the local apartment stock through a combination of outright ownership and conduit for Section 8 subsidies. A simple proposal: Give the right of first refusal to current renters to buy these government owned assets at a 25% discount to market value. Turn renters into stakeholders, à la Russ. And the cherry on top? After paying down the housing authorities’ debts, tens of millions of dollars in capital gains could be returned to taxpayers. Privatizing the two local housing authorities not only opens the door to homeownership for thousands of our neighbors but could result in the largest tax refund in Santa Barbara County history.

Second

Unleash mass apartment-to-condominium conversions. Grant renters right of first refusal to buy their units, incentivizing landlords with tax-deferred bonuses and higher market prices. In California, regulatory stranglers have coiled around apartment-to-condo conversions choking off such ownership opportunities to a dying trickle, despite condos commanding upwards of 40% premiums over equivalent apartment buildings. Renters opting out of condo conversions, or the privatized public housing noted above, could pocket tens of thousands of dollars by selling their rights of first refusal, a capitalist windfall that dwarfs any socialist tenant “protection.”

Positive Consequences

For buyers, price-to-income ratios could plummet below 1990 levels ushering in a new era of entry level affordability. With over 90% of California’s 4.9 million apartments more than a decade old, this would put lower priced home ownership within reach for millions who work hard and dream big. For apartment owners whose only practical exit has been to sell to other apartment owners via 1031 exchanges, why not offer a one-time 1031 tax relief equivalency for such condo conversions? If apartment owners were incentivized with profit rather than punished with price controls, a flood of lower end condo supply would come to market.

Third

Realign incentives for government and nonprofits toward ownership, not perpetual renting. Nationally fewer than 1% of Section 8 recipients ever escape the program thru home ownership, despite taxpayers footing an average lifetime bill of $200,000 per beneficiary in California. Our current system of rental serfdom keeps the American Dream perpetually out of reach for renters with taxpayers dangling forever on the hook.

Meanwhile, billions in nonprofit funds—untaxed yet well-intentioned—perpetuate a forever renter class. Redirect them towards ownership: Offer one-time down-payment grants for the truly needy, which is far more empowering than endless subsidies.

In Search of “Social Justice”

Magnanimous multi-billionaires, such as MacKenzie Scott, have already opened their pockets and purses to the tune of $19.3 billion for ostensibly noble causes, but how much of that has resulted in ownership pathways that lift middle class Americans out of rental serfdom?

Answer: little to none. Make Home Ownership Great Again for the virtue-seeking philanthropic class. Now that “woke is broke” and climate change has become passé, the billionaire leisure class desperately needs an unambiguously positive social justice goal upon which to focus and to publicize their deep well of virtue. What could be more just than to own the home in which you live?

Russia’s post-Soviet rebirth charts the course: Bring the first rung of prosperity’s ladder within reach, and people will defend the system that built it. Deny property—as in 1917—and demagogues will thrive on promises to seize it from others.

Republicans should build these free market policies of home ownership into the Party’s platform then go out and start winning elections on it. The party that freed the slaves, enfranchised women, and championed the 1964 Civil Rights Act can surely democratize the American Dream by putting the first rung of home ownership back within reach. Let us use market forces and logical incentives to place public housing and condos in the hands of our own rising generation.

An old Soviet joke once poked fun at the American Dream with the question: “What is the Russian Dream?” The deadpan punchline: “To ensure the American Dream never comes true.” That sentiment captured yesterday’s Kremlin socialists and perhaps many of today’s American ones. But if Russia’s youth are any guide, they aren’t crawling back into the cold ashes of collectivism; they are rooted in home ownership.

Isn’t it time middle class Americans enjoyed that same opportunity again?

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After the Berlin Wall fell, James Fenkner spent 15 years living and working in the former Soviet Union, deeply involved in the region’s privatization era. In 2009, he moved with his wife and daughters to Santa Barbara. He currently serves on the SB County Republican Party Executive Committee and is co-founder and publisher of SB Current.

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