Affordable?

|

What does affordable mean?  We now have the political class talking about “affordable” housing, “affordable” health care, “affordable” education, and consumer cost protections for essentials, such as energy and food, to mention a few of the “affordables” being bandied about.  The short answer to, what does affordable mean, is subsidy.  The key questions for investors are, who pays and how?  It is important to fully understand the potential financial impact of subsidies as part of any portfolio decisions.

Looking at some of the “affordables” by themselves, it would seem that the key methods can vary and may be difficult to fully analyze.  For example, housing subsidies may include rent controls and/or requiring developers to include more affordable units as a condition of permitting large projects.

In the universe of health care, affordability can include direct subsidies, price controls, and/or rationing of prescription drugs and certain procedures.

Sometimes, in the pursuit of political objectives, governments have introduced a system of regulatory credits, which can have the effect of subsidies, by penalizing company A for the benefit of company B.  Think Tesla and the legacy vehicle manufacturers.

All comments and suggestions are welcome.

Walter J. Kirchberger, CFA

Subscribe to Sigma Investment Counselors Blog by Email.