Yeah, I don't see why #2 is necessary. Make the government have to compete with the free market. If you're poor, you get a government-funded apartment, but if you're wealthy, you can afford a luxury condo.

There are food banks in my city, and nobody believes that they're a threat and they're going to put supermarkets out of business. You could just have standardized, ubiquitous food banks run by the government.