Gerontopoly: Homeownership, wealth, and age
cityobservatory.org
cityobservatory.org
Yes & it has been this way since the inception of government backed loans.
I've recently been digging into the history of housing discrimination in the US and how it relates to the racial wealth gap between blacks and whites. In my opinion there is a clear line from redlining, blockbusting, white flight & loan discrimination to the massive wealth gap among races we see today. It's quite clear to me that one of the best ways to build generational wealth is by the older generation passing off homes to the younger ones.
https://en.wikipedia.org/wiki/List_of_ethnic_groups_in_the_U... is a good starting point to think about. Look at groups such as Vietnamese and Cambodians. They mostly arrived in my lifetime. Everything is against them. Poor language skills, widespread PTSD from what they witnessed, no savings - pretty bad picture.
And yet, look where they are today versus blacks. How did that happen?
Generally I don't like to compare the struggles amongst minorities in America. There is a multitude of factors that come into play when analyzing these types of things..
But when you look at the history of discrimination vs. black people in America you need to go back and consider the effects all the way back from slavery, to Reconstruction/Redemption, Jim Crow, discriminatory housing policy, discriminatory lending, discriminatory policing, discriminatory criminal "justice", disenfranchisement on multiple levels, lynching, etc. etc. etc. This is 400+ years of compounding discrimination against black people.
I'm not saying the Vietnamese and Cambodians (and for good measure the Irish & the Italians) did not have it bad.. but I think we need to look at this with a broader lens.
You may not like to compare, but you really should. Because when you compare you get to ask the critical question, "What things did this group do right to overcome their challenges, and can we draw lessons that help replicate that success in another group?"
When you compare blacks and whites, the differences in privilege are so obvious that you really can't see anything else that might matter. But when you compare blacks and Cambodians, privilege goes the other way - blacks have more. For all that went wrong for blacks, they generally didn't flee on boats with only the shirts on their backs after witnessing a quarter of the people that they grew up with being killed. Only to land in a country where they didn't speak the language, or understand the culture, and were generally disliked.
So what did Cambodians have in their favor?
I'm drawing from my thoughts and other comments here. The determination that it takes to be a refugee. True hope that they can create a better life. A culture of helping fellow minority members. A certainty that no matter what the frustration, it really could be worse.
Now can we encourage those attitudes in blacks? I believe so. However you don't do it by focusing on a narrative of, "Your life is hopeless because of things that happened before you were born. Things that are entirely out of your control."
This is literally what happened through the Atlantic slave trade.. just replace "flee" w/ "were sold".
> I'm drawing from my thoughts and other comments here. The determination that it takes to be a refugee. True hope that they can create a better life. A culture of helping fellow minority members. A certainty that no matter what the frustration, it really could be worse.
> Now can we encourage those attitudes in blacks? I believe so.
I know that these characteristics have been shown time and time again within the black community. If you want to see a culture of helping fellow minority members look to the NAACP, if you want to see an example of determination please read "Up From Slavery", if you want to understand the hope to create a better life read "The Warmth of Other Suns".
My argument is not "things are out of your control" nor is it that there is something lacking in the black community that other successful minorities have demonstrated.. my argument is "here are the institutional and systemic barriers that are present -- if you want to understand the present situation and how to move forward you must understand them".
I don't want to put words into GP's reply to you, so this is purely my interpretation of what they were saying. The standard go-to retort by advocates of black American equality when presented with examples of minority community success stories is, "So? Blacks in America have had to contend with 400 years of systemic slavery and discrimination!" The position of your argument, and others like it, is we have to "study" the barriers, we must "understand" them before we can make progress against them.
My counter-thesis is that while it is important to be cognizant of barriers, what I call "dinner table change" (the kind of changes that bring dinner to your family's table that night) comes most effectively through power, and power accrues most effectively to those minority communities who organize together culturally, socially, and economically. They work around the barriers, and undermine them over time by obsoleting them, turning them into anachronisms. There is one minority community that has powerfully proven this approach works. But it takes generations of time, and that is an unsatisfactory answer in today's climate.
I have in mind a community that endured not only slavery, but systemic discrimination for not hundreds, but thousands of years. And they made lemonade out of their sour position. The Jewish community. And many minority or disenfranchised communities can learn from the lessons Jews iterated through, found and practiced workable strategies through the millennia.
These aren't just lessons for ethnic minorities, either. The recognition of wealth inequality for example, can bind together people under that common cause into their own minority community. It is difficult to feel satisfaction of progress from signing petitions, voting, or politically participating to advocate for changes in laws, policies, and attitudes. Those activities still must be carried out, but expecting everyone who cares about such change to only channel their efforts in such manners is unrealistic. There is immense satisfaction however at a small and daily level, when for example a local minority small business serving a minority community notches up another satisfied customer.
I know there are many criticisms to this insular, tribalistic advocacy. Our outlook should be more inclusively expansive. We are better than what I am talking about. But there comes a time when the concerns of tactical survival mount to the point that it is better to acknowledge the mainstream system has failed a specific constituency (for now, hopefully), than to sacrifice the well-being of one's family, loved ones, and dear friends upon the altars of ideologies and "The Should".
When we focus on things beyond our control, we create a sense of hopelessness. And the result is that we fail to do the things in our control that can create change.
Here is a lesson. If you go back 100 years ago, there was a resurgence of the KKK. The main target of their ire was NOT blacks, it was the Catholics (mostly Irish and Italian) and Jews. Their political power was such that Prohibition was passed with the main goal of giving more legal tools to discriminate against those groups. And their greatest stronghold was not in the South - it was in Oregon.
See https://www.portlandmercury.com/feature/2017/11/15/19472650/... for verification of this. My father's side of the family was Irish from Oregon. I won't forget a long conversation with my uncle about what it was like as a child growing up with concern about which neighbors might be KKK, and the importance of not drawing unwanted attention to himself at school.
Nor was this then a new conflict. The Irish largely came here as refugees from events like the Irish potato famine that happened under the long and brutal English occupation. This occupation began with English invasion in the 1100s. The conflict had been religious as well since Cromwell's put down rebellion with massacres in the mid-1600s. And then they came to the USA, a country founded and run by WASPs - White Anglo Saxon Protestants. Who knew and remembered this history of conflict as well as the Irish did.
For Catholics, the importance of JFK being elected was no different than the importance of Obama being elected to blacks. To date, JFK remains the only US President to be openly non-Protestant. Despite his family's wealth and power, he saw in the Civil Rights movement a familiar struggle.
When you study the long history of discrimination and oppression, do not satisfy yourself with only studying your own people's oppression. Understand that your story is not the only one. Learn about other people's struggles as well, learn what worked for them, and try to emulate them.
The black community has done so at points. For example the Civil Rights movement went much better in part because Martin Luther King learned from Gandhi's example and successes. However the current narrative that I see seems actively counterproductive.
I can't agree with this sentence. I agree, not knowing the language puts you in a bad spot, but I think you are really underestimating the level of discrimination vs. blacks in America if you think simply "not knowing the language" is enough to put some immigrant group in a worse position than blacks in America.
I'm not sure what other variables you'd like me to use in this analysis but I think if you look back over the history of America you see that others have used one variable to levy their discrimination and it's always been race.
> others have used one variable to levy their discrimination and it's always been race
There have been countless forms of discrimination, not all of them associated with race. After all, it's imperfect people dealing with imperfect people.
Other factors I think are also relevant to present-day wealth gaps: family norms/stability (e.g. single-parent prevalence), cultural expectations, education, location. Undoubtedly these are entwined with each other and with the variable of race.
My general defense against the "what about other minorities" argument is that other minorities are not starting from a similar position to blacks in America and that 400 years of discrimination has compounded and sets blacks back.
The other factors would be very interesting to analyze but once again I think you would need to understand the entire history of America and racial discrimination to make a full comparison, for example:
- Family Norms / Stability: When comparing this across races you would need to take in account a few things, such as the disproportionate amount of black men who are incarcerated and how that affects family dynamics.
- Education: You would need to consider the fact that most public schools are funded via property tax, and then you would need to dig deep into housing discrimination history to see why property values in black neighborhoods are so low and why the schools are poorly funded also.. schools were segregated for a long time and are still pretty segregated now.
- Location: Most African Americans in America live in the south, which has a lower GDP than other parts of America. However, the south was once an economic power house in America... but the engine of that power house (slaves) never benefited from the wealth they generated. So that would also be interesting to analyze.
Whether you do or don't doesn't really matter. Post after post has made the point that you are focusing on a single variable and it is clear that it's not explicit causation for the effects like you claim.
(1) Selection bias. The pool of immigrants who make it to America in the first place likely skews well above average.
(2) Culture/ecosystem problems in black communities, even if it's politically incorrect to argue it. Black neighborhoods are plagued by gang culture/violence, drugs, patriarchal absenteeism (estimates vary, but roughly 50% seems likely), intergenerational educational deficit (if parents are illiterate/undereducated, their children are likely to be so as well), and various other more generic issues that stem from chronic poverty.
I don't know if we can say emigrating Cambodians were in a worse position than impoverished blacks . Immigrants self select for being willing to leave everything they know for the hope of a better life; they have also competently navigated a difficult process. This selection bias is accentuated in war, when the logistics of escape become trickier. Communities then cohere and reinforce each other on the other side.
Contrast that with American blacks. Captured by coastal kings who sold them to Europeans who transported them here against their wills. Any who stood up or out got eliminated. Loose to non-existent intergenerational information and wealth transfer. Et cetera
The original poster posits a theory that generations of housing discrimination contributed to the enormous racial wealth gap. Another poster comes along and says "what about these immigrants who didn't face generations of housing discrimination?" And the conclusion of this is that the "single-variable approach" doesn't work.
It's too bad because the original point stands and in fact it's well documented in the literature. In fact an excellent book, The Color of Law [1], was recently published that shows very clearly in excruciating detail how racist policies systematically worked to deprive blacks of property and wealth.
But no, let's talk about the very different experience of the Cambodians and other minorities so we can continue to blame the blacks.
[1] https://www.amazon.com/Color-Law-Forgotten-Government-Segreg...
Also, I really think you should have some evidence at all that slavery or persecution causes intergenerational poverty after the effects have gone. I hear that theory a lot and I've never seen any science to support it. Only to support immediate poverty of the individuals who were persecuted, not their great great grandkids.
Another counterexample is Australia - founded by convicts 200 years ago and in a much shorter time, they ended up doing very well compared to blacks since slavery.
Forgetting Jim Crow and slavery is not enough -- this thread helps to illustrate that. The effects of Jim Crow and slavery would need to be eliminated.
> Also, I really think you should have some evidence at all that slavery or persecution causes intergenerational poverty after the effects have gone. I hear that theory a lot and I've never seen any science to support it. Only to support immediate poverty of the individuals who were persecuted, not their great great grandkids.
How could it not? I mean just think about the institution of slavery for a minute.. there was a time where the Mississippi Valley had more millionares than any other place in America.. how do you think that happened? Through slave ownership? Black families were literally torn apart generation after generation, they were denied the opportunity to realize the wealth their labor produced, generation after generation. A slave owner passes on his million dollar plantation to his children.. what does the slave pass to his child?
> Another counterexample is Australia - founded by convicts 200 years ago and in a much shorter time, they ended up doing very well compared to blacks since slavery.
How are the Aboriginals doing?
Rather similar to how Native Americans are doing, I believe, not great. Their percentage of the population is similar too, around 2%?
We don't have anything comparable to black slavery. Convicts when they had served their time could integrate back into society. My great-great-x4 grandfather was a British convict who got 7 years and sent to Australia for stealing a handkerchief...
If the effect is certain, how long does it take to wear off?
The US enacted a law banning Chinese.. The state I live in (Oregon) explicit banned blacks in the constitution [0]. San Francisco was ready to mob and burn down Chinatown... "Black Wall Street" in Tusla, OK was burned down by a mob.. [1]
I did not want to get into a tit for tat comparison between oppression but I would implore anyone who is interested to really do their research on race in America.
[0]: https://www.washingtonpost.com/news/retropolis/wp/2017/06/07... [1]: http://www.ebony.com/black-history/the-destruction-of-black-...
Just being clear, but wouldn't those also if not more so effect the immigrants OP brought up? Are we not also including Asian minorities?
See https://www.npr.org/2011/10/25/141672992/native-foster-care-... for one of the many current problems that natives have.
For the record I have family members living on reservations. Go back a little over a century ago, and natives were hunted for sport, like game animals. It was only 40 years ago that the USA officially discontinued policies of forcibly removing children from their homes and putting them into schools where they were mistreated. I personally know people who were beaten as children for speaking in their native language. Abuse and prejudice remain facts of daily life.
Minorities that are already in the United States don't have the ability nor the structure to make this a reality.
A lot against them, but a lot of important factors working for them too. For one thing, their family and community structure remained intact, allowing them to build community capital.
Also, because they are Asian, they benefit from the beneficial stereotypes of Asian Americans in educational and business environments AKA "the model minority" myth, and don't experience the presumption of criminality that blacks are often subjected to to this day.
As others have stated, they were also a self selecting group who were fleeing a single acute experience of trauma due to the war vs the intergenerational and normalized trauma of slavery and segregation that blacks face. And to add to that, they arrived with a strong work ethic, but at a time when many immigrant groups landing in the US were doing well. They weren't redlined. Their children weren't excluded from white neighborhoods and schools.
I, as an Asian American, grew up in in a 90% white city with excellent schools, but with a conspicuous lack of black people around. No segregation for me, but it was there if you were black.
None of this is to say Vietnamese and Cambodians had it easy at all. In fact, they are still poorer on average than other immigrant groups who arrived around the same time with better circumstances, like Indians, Taiwanese, etc. That's who you should be comparing them to to understand the effects of disadvantages.
Perhaps you can imagine the benefit of a fresh start. Instead, American blacks have had a long continuation from slavery.
Consider a financial metaphor -
American whites: compound interest
American blacks: compound debt
American immigrants: reset (bankruptcy if poor)
It is easy to continue momentum, hard to dig out of a hole, and nice to start over.
>American blacks: compound debt
>American immigrants: reset (bankruptcy if poor)
Can you explain this? Why would compound debt exist for blacks but not for anyone else? Why would poor American whites be labeled under "compound interest"?
That seems like generalizing based on skin color.
Blacks were slaves, whites and immigrants were not.
Can you picture slavery as digging out of a hole (debt)? Until breaking even, you are subject to compound debt.
Yes, immigrants do well within a generation or two. Blacks have only had civil rights for a generation. White males not only have always rights but made them.
Yes, I'm generalizing based on skin color. That is literally what race is.
Immigrants (especially non-White) faced their own challenges, but not those ones.
In the mean time: ecology is in decline, trust in science is on the decline, democracy is in decline, wealth inequality is increasing and accelerating. The emperor has no clothes. Wake up!
Some might interpret this uncharitably. To defray that potential, would you mind giving us a hint as to what you've found / are suggesting?
Outside of the false equivalence - as posted to great fanfare yesterday :
All blacks? Methinks you've tipped your hand.
I'll indulge you though and wonder, bemusedly, if immigrants have different social structures and expectations of a country than a formerly enslaved ethnic minority whose social cohesion and family structures have been systematically dismantled and obliterated. Whose social traditions and cultural ties have been intentionally wiped out for centuries?
Could an immigrant's cultural identity and ties to other immigrants with shared goals and expectations allow for a beneficial cooperative framework wherein alternative banking and lending structures are available to the newly arrived?
Could a society that still murders members of its citizenry disproportionately due to their ethnic and historical legacy (and a legacy no fault their own) really offer a framework beyond simple survival to such a minority?
Could the difference between being a foreigner in your new home and a "foreigner" in your own actual home country encourage different outcomes?
All these questions...
Both political parties in this country seem to undermine black families, Conservatives through thinly concealed racist policies and the war on drugs, Liberals through social programs that foster dependence on government rather than elevation to independence.
This is apparently what happens when you have a strong cultural revolution during the 60s, but everyone grows up and gets greedy. Although I'm not too optimistic the millennial generation won't do the same exact thing when they turn 40...
edit: forgot to mention wars...
The middle east was destabilized before most Boomers were born or when they were young children. Blaming grandma for people fighting in the Middle East is ridiculous.
> expect to be taken care of by social security and medicaid during retirement.
Social Security was created in 1935 before a single Boomer was born. Medicaid was created in 1965. Boomers would at most be 20 years old or at minimum 1.
> thrust us into many unwinnable wars
Young people actually supported the Iraq War at a higher rate than did older Americans.
http://www.people-press.org/2002/10/17/generations-divide-ov...
Thanks, boomers, for de-regulating banks, leading to financial instability that continues to this day.
Thanks, boomers, for the 2007 Great Recession.
Thanks, boomers, for buying up homes in 2008 at a discount, and selling it back to the next generation at an exorbitant price. Your "investment" is literally why we have a housing crisis.
Thanks, boomers, for the massive mismanagement of federal, and local governments.
Thanks for the wars, boomers.
Thanks, boomers, for some historical wage stagnation.
It's no surprise that people are struggling to afford a home, and waiting to start a family.
Is this a national problem you're seeing, or one specific to CA/NYC/etc.? I suspect it much be a local problem, since I can't see doctors, lawyers, and programmers having a hard time affording a home outside a few very specific locations.
That said, I think the housing "crisis" is really specific to certain areas. In CA what we're seeing is that it's very hard to afford a home in certain areas.
The creation of the automobile opened up a ton of land for new, cheap housing. That lasted for a few decades, but the land is now developed and the population is much larger and evermore urban, so the gold rush is over.
There may be a chance to develop our way to cheaper housing, but you'll be getting less land and less space for more money.
My wife and I hold "great" jobs right now. Some of the best in the nation. Yet we can't afford anything close to what our parents could when they were 10 years younger than we are now.
And it just pisses me off to no end when we see shit like this from the boomers:
http://money.cnn.com/2017/05/15/news/millennials-home-buying...
These people have no idea how lucky and easy they had it compared to what young people are dealing with now. The deck, is stacked.
Boomers aren’t a homogeneous whole we can point a finger at and lay blame.
Some Boomers, sure.
https://www.nakedcapitalism.com/2013/11/identity-politics-an...
"A particularly potent political grouping would be for older people, particularly retirees, to team up with young people on economic issues. So it’s not surprising that some political mavens are trying to make sure that doesn’t happen. One of the strategies of the plutocrats comes from financier Jay Gould : “I can hire one half of the working class to kill the other half,” except this time, they aren’t even having to hire one half to turn it against the other.
Just as I’ve noticed an sharp uptick in women’s identity articles, I’ve also seen a ramping up of generational warfare and anti-baby-boomer messaging (I have as much antipathy towards broad comments about baby boomers as I do women). This phenomenon admittedly has deeper roots, since billionaire Pete Peterson has been campaigning against Social Security and Medicare since the mid 1980s, and presenting old people as something society can’t afford is part of his strategy. But he’s been joined by fresh troops, such as Fix the Debt and billionaire Stan Druckenmiller’s overt campaign to turn young people against older ones, The Can Kicks Back."
https://www.npr.org/podcasts/555340969/there-goes-the-neighb...
I know in my city the neighborhood that historically had high black homeownership levels now has a million-dollar entry fee. Meanwhile the suburbs are undesirable and cheap.
So, the million dollar apartments are owned by wealthy white landlords who have realized 100% of the appreciation, while systematically pushing poorer minorities, who are almost 100% renters, out to even worse ghettos.
https://wp.zillowstatic.com/1/ThenAndNow_Race-Final-594696-1...
Part of it is that many homes sold during the white flight and blockbusting era did not go to minorities, there were explicit causes in the sale to prevent this. Another part of this is the fact that minorities who did buy bought "on contract" which means that they did not owe a mortgage to a bank but to an individual (who most likely was a blockbuster) they did not build equity (wealth) and were subject to very harsh loans. I don't know what percentage of homes sold to minorities during this era were "on contract" so it's hard to quantify the effect.
Based on an anecdote it's definitely true that some amount of minorities benefited from re-urbanization.. I was in NE Portland a few weeks ago and had a very interesting conversation w/ a local Uber driver who lamented the fact that his family had sold his grandmothers place in the 90s, this home has probably appreciated at least 3-4x since then.
Yes! And due to inheritance, wealth propagates within racial lines. White families build wealth subsidized by the government and have white kids, who have a huge advantage over non-whites due to the historical wealth accumulated.
It is a self-reinforcing and self-propagating process, and now, old whites use zoning laws to extract value from younger generations, particularly non-whites and poor whites, whose families don't own real estate.
Seems if the argument is that white wealth propagates - that there should be few poor white people anywhere. There has been no racism towards them, and lots of time to build up the "subsidized wealth".
I'm not crazy about all this generalization based on skin color.
Yes, but that is irrelevant. Poverty rate is 9% for whites, 22% for blacks.
> Seems if the argument is that white wealth propagates - that there should be few poor white people anywhere. There has been no racism towards them, and lots of time to build up the "subsidized wealth".
There are fewer poor white people. The problem is that racism isn't the only factor in play here. Bad education, healthcare, etc. contribute to inequality.
There are issues in play both intra and inter races. As outright racially-driven policies were revoked, whites turned to using wealth as a way to block blacks, resulting in the side effect of punishing poor whites as well.
> I'm not crazy about all this generalization based on skin color.
This isn't generalization. Read the redlining maps. Look at household wealth broken by race, the difference is even sharper than income:
https://www.epi.org/blog/the-racial-wealth-gap-how-african-a...
Yes. See: "The Color of Law" - https://amzn.to/2JlHvRT extensively well documented. It's depressing reading though.
I have thought about this before and really think we should stop treating home ownership as an investment. However, I can't think of a way to do that which is fair to those who bought homes already..
This belief that we cannot do a thing unless that thing benefits wealthy homeowners is harmful.
That's not to say the rules could never be changed. But just imagine being, for example, a small time landlord in the UK. Recently the rules changed, and you can no longer deduct mortgage interest as an operating expense from the rents you collect. Old mortgages are not grandfathered. This means a lot of existing rentals are suddenly & out of nowhere going to be losing their owners money. Thanks, government. Maybe it needed to happen, but it's a bit chilling to have that kind of rule change happen on you.
I guess this is just an ethical question? I don't think it would be fair to those who recently bought a home if we just wiped out a substantial proportion of their assets.
> This belief that we cannot do a thing unless that thing benefits wealthy homeowners is harmful.
You perhaps misinterpreted my comment. I don't think they will benefit at all from a solution, but I would think a good solution should not be too devastating to any given person.
I'm less concerned about wealthy home owners than I am for those who just got a mortgage.
Alternatively, if you want to get a bit more radical we could turn all property ownership into 99 year leases from the state, as is the case in Singapore, potentially reducing the length of time on leases over time to spread out the pain. Though it would be a long process.
I would also support legislation that reduces transaction costs on buying/selling homes, which actually suppresses the price of homes because it takes a longer term commitment for buying to make sense.
> I have thought about this before and really think we should stop treating home ownership as an investment. However, I can't think of a way to do that which is fair to those who bought homes already..
Correction: fair to those who bought homes recently, rather than 20 years ago and are sitting on top of unrealized capital gains.
The latter is hardly incompatible with affordability, and can still be considered a sound investment.
>Home is where the cartel is. I use the word “home” not “housing” advisedly. Homeowners understand their actions not as monopolizing the housing market but as protecting their homes and neighborhoods from the market. The libertarian “deregulatory” rhetoric by which market urbanists sometimes make their case is counterproductive. Telling people to think of their homes as a commodity upon which market forces should be brought to bear in order to ensure production of housing services at competitive prices is obtuse. People purchase property, rather than renting, largely to gain security and control, to escape the vicissitudes of the market. The worst place to emphasize “deregulation” is in dense urban environments, where almost every sort of action has spillovers.
Policies like up/rezoning which decrease current home prices in order to lower rents are directly redistributionary and I think you have to make your case in those terms and I just don't find redistribution on the basis of age that convincing.
When you have an asset with minimal elasticity in supply (such as housing in areas where building more is difficult) that is nevertheless needed for survival, owners of that asset will be able to capture most of the productive capacity of the people who need that asset. In areas with high productivity and high incomes - like around rich coastal cities - that's manifested by skyrocketing housing prices. In areas with lower productivity and lower incomes, prices still go up, but not as much, and the effect is felt as an inability to get ahead or even make ends meet even when you work hard. The wealth generated by younger laborers is transferred to older asset-owners who own the necessities of life, simply because they continue to own them.
Similarly, classical economics predicts a substitution effect for these goods: as they become increasingly less affordable, buyers will try to bypass the market entirely.
That's behind nearly all the social changes and huge tech businesses of the last two decades. Can't find a place to live? Rent in a tiny apartment instead of buying a house. Live out of a van. Move to cheaper locales while working remotely. Can't get a job because that's yet another scarce resource monopolized by an older generation? Drive people around in your car with Uber. Sublet your rental on AirBnB. Blog for advertising revenue. Sell your crafts on Etsy. Start a new service business and advertise on Facebook or Google. Take funding from YCombinator and try to start the next great marketplace.
The last couple years have brought even more radical examples, eg. Bitcoin is basically an attempt to setup a shadow financial & monetary system and opt out of the dollar-denominated economy entirely.
Westerners really need to look at other countries. You do not see these sorts of extreme housing shortages in Asia. You don't see it in Tokyo, Bangkok, Shanghai, or Seoul. I have trouble even explaining what's happening in places like San Francisco or London or Paris to my Asian partners. That's because Asian cities aren't afraid to grow. Tokyo, Bangkok -- these cities have grown enormously and continue to do so [1].
Ultimately, the West has collectively decided to tombstone their cities. There is enormous demand to live in the West's metro centers and yet, at virtually all levels, powerful forces work to ensure that these cities do not expand to satisfy this demand. This decision not to grow is very much a political decision.
The end result here probably won't be good. A great deal of economic growth is being left on table. Cities are the primary engines of economic growth and when they aren't allowed to grow the result is less growth and opportunity. Political instability ticks up; a great deal of many people stuck languishing in less dynamic areas because they can't afford to move to the dynamic cities end up feeling like they're stuck and now want to tear the whole system down. Democracy itself breaks down as the urban-rural divide becomes more and more severe.
But hey, in the short term, those who bought early get rich.
[1] https://jamesjgleeson.wordpress.com/2018/02/19/how-tokyo-bui...
https://news.ycombinator.com/item?id=16908733
Monopoly is well-treated in classical economics, and this is an instance of zoning regulations enforcing an artificial monopoly. And the results are exactly as predicted in a microeconomics textbook: owners of the monopoly asset capture nearly all economic surplus from trade in it.
AirBnB and Uber aren’t “bypassing the market”, they’re bypassing local laws and ordinances. The reason why AirBnB is cheaper than hotels and Uber is cheaper than taxis is because they don’t incur the cost of regulatory compliance. Real estate would also be cheaper if developers didn’t have to comply with zoning regulations.
Similarly, the local sublet/taxi regulations that AirBnB/Uber bypass artificially constrain supply, allowing owners of properties or taxi medallions to charge economic rents. Bypass them and you get a competitive market, where owners of houses & cars can charge only the marginal cost of use (and instead, AirBnB and Uber get to charge monopoly rents).
The principal/down payment is the first problem - interest rates just increase the cost of money, but get eaten away by time.
Low interest rates "stimulate the economy" which means those who already have (applicable to both people and companies), can borrow more and multiply their assets much more rapidly than those who don't have, can catch up.
So what's better, high asset prices or high borrowing costs? Something tells me they both even out painfully.
When long-term risk-free rates are exceptionally low, capital seeks excess return, much of which gets invested in real estate, increasing demand and prices. When the risk-free rate is 7, 8, 9% on a 10Y bond, then messy, illiquid, physical real estate is far less desirable as an investment.
The original article was about income inequality -- when average Joe can easily borrow $300k for a house, the average company can easily borrow $300 million or $3 billion to get larger, buy competitors, execute LBO's, etc... all of which consolidate power and capital among the wealthiest and ultimately reduce labor opportunities for everybody else.
When long-term risk-free rates are exceptionally low, capital seeks excess return, much of which gets invested in real estate, increasing demand and prices. When the risk-free rate is 7, 8, 9% on a 10Y bond, then messy, illiquid, physical real estate is far less desirable as an investment.
That's just one factor. Another is this. When interests rates go up, the reason why price pressure is down in the first place is that fewer buyers can afford fewer houses; in other words, sales go down. This is already happening today (https://www.bloomberg.com/news/articles/2018-04-25/are-risin... <-- today's article). When sales go down, sure, there's downward price pressure. But by that time, contrary to what you seem to be suggesting, the little guy doesn't necessarily benefit (because borrowing costs can be out of reach). And worse: if they go down far enough, it could bring some people underwater, which as we saw from the last cycle disproportionately impacted the lower middle class. And even worse: any home equity line of credit that has a balance is going to be more expensive to pay back.
The original article was about income inequality -- when average Joe can easily borrow $300k for a house, the average company can easily borrow $300 million or $3 billion to get larger, buy competitors, execute LBO's, etc... all of which consolidate power and capital among the wealthiest and ultimately reduce labor opportunities for everybody else.
Yes, the original article was about income inequality. And I've addressed these above, using different factors than the ones you've honed in on (capital concentration). I have news for you, capital concentration still leads to inequality during times of cheaper housing. You're making a mistake by thinking higher interest rates will make a big dent here: Blackstone and American Homes 4 Rent have sources of cash that you and I don't have (IPOs, bonds, to name some, I am sure there are many more).
Income inequality has expanded at an unprecedented pace in the past 10 years, during which, global interest rates have been the lowest they've ever been.
If I encounter someone who has spent a year digging a hole, another person who has spent two years digging a hole, and another person who has spent ten years digging a hole, I suspect that each respective hole's depth would be roughly proportional to the length of time spent digging it. The same concept applies to years making income. Clearly this isn't ubiquitous, since it's only possible to gain wealth if you make enough money to save wealth, but one could argue using this data that it's actually the norm.
What am I missing?
Politicians set the policy that determines supply and demand of housing.
I strongly believe these things are causally linked, but do not know how to empirically test it.
- divorce/single head-of-household rate. Over 75 probably has a much higher marriage rate than younger. If you divide that wealth into two households, how does it look?
- shift to private ownership of retirement accounts. In 1989, pension plans, etc., were much more common. These wouldn't count as personal wealth as they are income-maintenance, rather than an asset.
The other big problem is fundamentally: regulations that drive up costs for developers: everything from impact fees, to zoning, etc. We need to start working with developers to drive down costs and increase competition: that, plus vast amounts of building will drive down costs.
[1]https://en.wikipedia.org/wiki/Irvine,_California (see census data for 2010)
Thus homeownership is pushed as a kind of pacification of the urban population.
Proponents of building more housing need to step up their political activism to match the NIMBY crowd.
Spend less than you earn, and invest in the market. Over time, wealth will surely (surely) accumulate.
There is no unfairness. You can read the same thing in books that are many decades old.
There is a risk that property tax could suppress supply of housing in the long term, since it makes rentals as investment vehicles less profitable, and therefore indirectly contribute to increasing rents.
In my high COL area, renting is definitely cheaper than owning, at least with regard to small condos that I look for. Foreign and older buyers have pushed up the price of condos as rental properties, but now there is a glut, and they must rent at the price the market will bare, which has absolutely nothing to do with their actual costs, but instead what the average 30 year old can afford here.
And in my city, there simply aren't enough millenials able to buy these high priced condos ($300K + $800 in HOA / taxes per month). Thus the rent gets pushed down to $1500, which is way less than it'd cost to buy, and is definitely a money-loser for many of the owners after paying interest, management fees, taxes, HOAs, etc.
For centuries prior the elderly were subjugated to the mercy of the young (like many Asian economies and as one could imagine in primate hierarchy groups), due to physical labor being the largest source of wealth. In contemporary society, the contrary is true given that physical labor has been a diminishing source of wealth. Today's economy is one where experience and knowledge triumphs, as physical labor is rapidly replaced through automation. Society is still far from it, but as close to a meritocracy as it has ever been.