This seems to get rid of the INSERT race condition.
CREATE OR REPLACE FUNCTION select_hometown_id(hometown_name VARCHAR) RETURNS INTEGER AS $
DECLARE hometown_id INTEGER;
BEGIN
LOOP
BEGIN
WITH sel AS (
SELECT id FROM hometowns WHERE name = hometown_name
), ins AS (
INSERT INTO hometowns (name)
SELECT hometown_name
WHERE NOT EXISTS(SELECT 1 FROM sel)
RETURNING id
)
SELECT id INTO hometown_id FROM ins UNION ALL SELECT id FROM sel;
RETURN hometown_id;
EXCEPTION WHEN unique_violation
THEN
END;
END LOOP;
END;
$ LANGUAGE plpgsql;