Satoshi's Sidewalk #26: Luxury (Dis)Belief

People are so wealthy and bored that they argue about housing policy.

The concept of a “luxury belief” has been developed and popularized by psychologist Rob Henderson (Rob’s Substack). In defining luxury beliefs, Rob puts it this way:

Luxury beliefs are ideas and opinions that confer status on the upper class, while often inflicting costs on the lower classes.

For the purpose of today’s post, and what is generally discussed here, we will modify this definition slightly:

Luxury beliefs are ideas and opinions about housing policies that confer status and continued wealth to existing homeowners, while undermining renters and aspiring homeowners. 

There has been an unfortunate turn of events wherein housing policy has somehow crept into the national debate. That’s right. This is how low the bar has fallen (someone call James Cameron!). Now everyone has an opinion of what housing policy should be in their neighborhood and throughout the nation.

How the French toast fuck did that happen? We shall blame Trump being Trump and the World Economic Forum being the World Economic Forum (WEF).

Trump made mention of housing policy during his 2020 campaign, telling suburbanite Karens he won’t allow “slums” to be built in their beautiful, Stepford wives-esque neighborhoods. The WEF has recently been promoting the “15-minute City” with a heavy dose of CCP. Pedestrian egress gates with social credit scores included! Add COVID lockdowns paired with excess free time and now every Kevin and Karen with access to YouTube is suddenly an expert in housing policy. With the addition of said “policy experts,” thousands of people voting with their feet, rent rates blowing off the doors, huge changes in demand, and unyielding bureaucratic processes, there are now serious housing issues across the country.

The math is simple: how many roofs exist and how many heads want shelter above them? Are there enough? Yes, or no? How does one even know? What is the price of existing shelter? What is the price for new shelter?

Where supply meets demand, the outcome is price. Rapid price changes show large distortions in specific areas.

In this case, both supply and demand are severely distorted. Supply is constrained by ordinance and law. Demand was, and partly still is, distorted by state actions relating to collateral damage from COVID. In this case, changes in demand have far outpaced changes in supply for nearly two years. Why didn’t supply adjust more rapidly?

Why, indeed, Watson?

Herein lies the problem: creating new housing supply is a largely political process¹. That means your local city council members vote whether to allow new housing or not (or any development, for that matter). And where there’s voting, there’s politics. Where there’s politics, there are “only” two outcomes: yea or nay.

As with the illusion of choice, there are two popular schools regarding the vote. Each group of participants have their own view of what the correct housing policies should be. While participants in the process don’t cast votes, they tend to influence other boards and councilmembers along the way. Allegedly this is representative democracy at work…Allegedly.

Those who vote nay are the staple opposing force for any new development case: the NIMBYs - “Not In My BackYard” - folks. NIMBYs prefer more stringent housing policies which make new development difficult or flat-out prevent it. In their view, local systems are already strained, or the addition of new industry or increased populace will ruin the current state of their neighborhood. A typical argument against new dense development is: “this isn’t New York!” Much of the NIMBY argument revolves around preventing change. Their neighborhood, city, or tacky McMansion are prefect as-is and any change to the status quo negatively affects the “neighborhood character” or home value.

NIMBYs are rightfully accused of pulling the ladder up behind them. They got theirs already. Why should they let you have yours at their supposed expense? Those who own property believe anything different being built than what they have will decrease their property’s value. In the minds of NIMBYs, value is most definitely not subjective. No matter what is said. It’s their retirement. It’s how they’re going to afford clothes and food with the ever-diminishing purchase power of their still unrealized equity.

These arguments arguments have dominated the development landscape for decades. There is no shortage of arguments or elements to dispute given their view that any change is undesirable. Picking apart aspects of a new apartment, or condo, or subdivision is easy pickings. Don’t like the colors? Fight. Too many or too few windows? Fight. Not “enough” parking? Fight. It’s not whether the developer has followed the local ordinances, it’s about making life difficult along any avenue and every avenue in order to halt progress. When it comes to the goal of  NIMBYs, it’s much easier to stop what is known about a project than to tolerate the unknown outcome of the development itself. NIMBYs believe their local system should be cast in amber forever. Will the new housing “bring wonderful people just like me” or are Walter White and the Sinaloa Cartel going to take over the new community? Hmm…

Rebutting such arguments is like arguing with a woke moron or flat earther. There is no amount of evidence or objective testing of any kind that will be accepted in discourse with their parasitic mind. They’re simply in too deep of a cognitive dissonance to be saved. Read their last rights by ridiculing them into the dirt.

On the flipside are those who vote “yea” in relation to the new housing or development debate. A more recent and sometimes welcome phenomenon are the YIMBYs - “Yes In My BackYard” - crowd who prefer more lenient housing policies which promote more dense development uses. The more the merrier.

While they hold a more favorite viewpoint from their counterparts, YIMBYs carry plenty of pitfalls on their own. Under the umbrella there are many cohorts of YIMBY who despise and contradict each other on grounds of ideological differences. Some common YIMBY motivations include: promoting DIE (Diversity, Inclusion, Equity) agendas, reducing climate change, putting a stop to the gentrification of poorer neighborhoods, being anti-car, anti-suburbia, pro-affordable housing (i.e. rent control), eliminating parking minimums, building new supply to reduce current rents, and increasing the variability of housing types such as “missing middle” housing. This list is not exhaustive, and not all YIMBY motives are nonsensical. For example, how can development stop climate change if the development changes the natural environment? Who determines the acceptable degree of change? Another example is “your new tower, Mr. Developer, must allocate 20% of the units to people of color at the maximum allowable rental rate of X.” The pursuit of parking minimums elimination is wonderfully positive trend sweeping the nation’s cities. Eliminating parking minimums reduces rent by reducing on-site park costs, minimizes car necessity, and reduces central planning efforts.

Now for the big picture. YIMBYs and NIMBYs are arguing within the same framework and disagree about the degree to which one or the other should control development. Neither group is all bad nor all good. The two groups are two sides of the same coin. That coin is a legal construct called an encumbrance.

An encumbrance is the degree to which a third party either voluntarily or involuntarily has the right to use, control, or enforce limitations on real property which they do not hold title to². An encumbrance can be an easement, property taxes, mechanic’s liens, recorded purchase options, a mortgage, etc. There are an assortment of encumbrances people, organizations, or governments use associated with real property.

This offers a unique opportunity for comparison as this publication focuses on real estate and bitcoin. Real estate is subject to all sorts of voluntary and involuntary encumbrances, whereas Bitcoin is not. 

NIMBYs and YIMBYs fight on Twitter and in real life over the degree to which they should have control over your real estate. They are two sides of the same coin, spinning round and round. The question is do either party - or anyone for that matter - have the right to encumber property to determine or limit its use? When did neighbors gain the legal right to levy such control? Better yet, when did local government gain the legal right to dictate anything about land use?³

Let’s contrast this state of affairs with Bitcoin⁴.

Bitcoin as a decentralized network at its core stands in stark contrast to the current state of real estate development. The only method to control bitcoin is by using a private key for a specific wallet. Only the holder of a private key can send transactions from said wallet. Just that individual. Nobody else. A private key may be voluntarily given away⁵ and thereby grant control to someone else. The private key can be lost or stolen (i.e. if written down on paper and left in the open). However, the private key cannot be taken without some form of coercion – such as the infamous $5 wrench attack. Even if coercion were to occur, there are ways to protect yourself. Hacking someone else’s private key is such an astronomically difficult task that it can safely be ignored. This is the power of SHA256 encryption.

When it comes to encumbering another person's wallet, like a city council encumbers land with their vote, the same cannot be done with that bitcoin wallet. Just as this author cannot encumber the reader's wallet…or hinder transactions the reader wishes to send in any way. No matter how hard a malicious actor tries, Alice sending bitcoin from her own wallet from her own Bitcoin node⁶ cannot be prevented. The same malicious actor could program their node to reject Alice's transactions but that won’t work. The rest of the Bitcoin network’s nodes will accept the (valid) block which contains Alice’s transaction and will move on.  So long as Alice’s transaction is valid, no one can stop Alice from spending bitcoin in the manner she chooses. Not Bob, Alice’s neighbor, not Alice’s neighborhood, nor government employees, nor city councilmembers. It cannot be done.

In the same vein, bitcoin being sent around the network cannot be encumbered by decree. For the sake of an example, let's ponder a situation wherein Alice's local city council has voted that her bitcoin is tainted (in this case, because Alice painted her house orange and refuses to paint it tan). The city council knows Alice's wallet address and, by ordinance, has stated that any bitcoin held or passing through that wallet is now tainted and belongs to the city council. This would be like the city council voting to lien Alice's house (because it’s orange) in the hopes of foreclosing her out⁷. Instead of collecting the bitcoin from Alice, the government will attempt to collect other property to satisfy their demands using their normal bag of tricks.

Unfortunately for city council, their plans are moot. The bitcoin network makes no distinction between different units of bitcoin or their decreed, differentiated status. Every sat (smallest unit of bitcoin; 1/100,000,000^th) is absolutely fungible with every other sat on the network. The same city council could run their own node and deem every sat Alice ever touched to be tainted and such actions would be fruitless. The city council’s node, by attempting to make Alice’s bitcoin different by way of tainting, has put itself out of consensus with the rest of the network and is ruthlessly ignored. Try as the city council might to punish Alice for her predilection towards orange hues, they will never successfully encumber her bitcoin or her bitcoin wallet. (Alice really needs to move to a different city where she and her bitcoin are welcomed.)

An individual's rights when owning bitcoin is almost the exact opposite of the current plight of real estate owners and by extension real estate development. An individual who owns land does not have development rights to build something until they receive permission from the powers that be. That land is entitled to nothing and is encumbered by a litany of historical actions and encumbrances by local, state, and federal governments – analogous to property taxes. Other people or entities are free to file legal actions to prevent property development by citing incongruent uses, destruction of “character,” or whatever other legalese gibberish opponents are willing to make. Some actions succeed, others fail. The issue comes down to the fact that those who have zero ownership of a piece of real estate may affect or burden a desired entrepreneurial outcome. Recall - we started by talking about building more housing – not building a nuclear plant or waste incinerator next to an elementary school⁸.

So…how does our reimaging of luxury beliefs play into YIMBYs, NIMBYs, and encumbrance?

Groups, organizations, and governments wield the authority to encumber real estate in the manner of their choosing which negatively affects people in the market for a place to live. It does not matter if that place is an apartment, condo, or detached single family home. The trade-offs are being made to reach the outcome desired by the lobbying group at another’s expense.  Thus, existing homeowners are “wealthy” enough to expend time and energy to gain control of or directly influence land use policies when the opportunity arises - so if a development were to occur that would “affect” NIMBYs or YIMBYs, they should have a level of control over the outcome.

This flies in the face of entrepreneurial risk and reward for developing real estate. Development is not an entrepreneurial venture but becomes an attack on a neighborhood. The luxury is in perceived wealth which has been gained but remains unrealized by individual NIMBYs, YIMBYs, or others⁹. That wealth is enough to fight over determining whether or not the developer’s risk is good or bad for them. Even whether the sough-after development is worth pursuing at all - to them. Such is only possible in a society where people have already achieved property ownership such that any potential change to the local environment is a danger to their status and or position.

TL;DR - owning property is in and of itself wealth. By changing anything in the local built environment, the existing stockpile of wealth (equity in property owned) is negatively affected. By affecting the development process in any way, those NIMBYs/YIMBYs have acquired a kind of equity in another’s property. Not management or standard ownership - but a form of control.

An encumbrance.

Bitcoin is the apex property with absolute property rights. It is the North Star to which all other property rights will be compared. Every 10 minutes another bitcoin block is mined and the networks consensus rules are enforced equally for all participants. Bitcoin resets the gradient for property rights by cementing itself as the unstoppable force and immovable object. When we compare the property rights encoded in bitcoin with the bundle of property rights for land, there’s not much to compare at all:

You control your bitcoin. Your neighbors control your land.

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1. It would be remiss of me to exclude instances where developments do not need city council approval. I don’t want people thinking every home or every shop goes through their local monthly city council meeting. This is not the case. What did go through city council in the past was the top down decision to decide land use via zoning overlays, general plans, referendums, or neighborhood ordinances. At some point, the land use was decided by a political body.

2. Real Property = land and any fixtures or improvement attached to the land; i.e. a house or tree or swing set, and easements of any kind. Real property, property, real estate, and land are used interchangeably in this publication.

3. To be repeated ad inifinitum: central planning does not work

4. For clarification, there is Bitcoin and there is bitcoin. Examples: I run the Bitcoin software of my Bitcoin node. I sent bitcoin to my friend (not bitcoins, it’s not plural).

5. Please, please don’t ever do this. Please.

6. A Bitcoin node is a computer which runs the Bitcoin software, acting as a verifying agent of transactions and blocks on or occurring on the network. “This is my Bitcoin node. There are many like it but this one is mine. I trust no other Bitcoin node but mine.” A more popular aphorism is “Don’t trust, verify.”

7. The city would foreclose Alice’s property, kick her out, paint it tan, sell the house, and pocket the cash. Timing is not important. The power to do this exists. Also, don’t forget about civil asset forfeiture.

8. This is best controlled by price. Always has been.

9. For the wealth in owning a home to be realized, the home must be sold. If your house is “worth” $1,000,000 and you owe $100,000 for a mortgage, the $900,000 is your equity in the form an unrealized gain. If you go to sell the house and only get $500,000, your realized gain is $400,000. The gain doesn’t exist until the money his your bank account! Big difference!