Gerontopoly: Homeownership, wealth, and age

http://cityobservatory.org/gerontopoly-homeownership-wealth-and-age/

by jseliger • 8 years ago

112 139 8 years ago

40acres10• 8 years ago

Is the “dream” of homeownership really just a massive, intergenerational wealth transfer?

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.

nostromo4• 8 years ago

Wouldn't white flight followed by re-urbanization favor people of color in terms of home value?

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.

illumin82• 8 years ago

No, because what do you think those white people fleeing to the suburbs in the 80s and 90s did? They didn't sell homes to minority homeowners because the banks wouldn't give minorities loans. They either sold to other white landlords, or became landlords themselves.

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.

40acres10• 8 years ago

This is a tricky question for me to answer because I've been doing more research on the "back end" aka why minorities weren't getting housing as opposed to what's happening now w/ re-urbanization.

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.

flanbiscuit• 8 years ago

There's a good NPR podcast series that goes into this. First season is about NYC, second is about L.A.

https://www.npr.org/podcasts/555340969/there-goes-the-neighb...

40acres10• 8 years ago

Thanks for this. I've been really interested in learning about housing policy and trends lately & wanted to come across a podcast about it.

tropo• 8 years ago

The reality is that the house is sold to cover the cost of a nursing home, or that a reverse mortgage is used to convert that value into living expenses, or that the older generation dies with home equity loans that were taken out to cover expenses.

illumin82• 8 years ago

I've said it before, but the millennial generation will not be kind to boomers when the history books are written. Our parents have basically fucked us over in a million different ways, but especially with housing. I see a ton of boomers who have basically shredded the economy by creating multiple bubbles in the stock market and housing, destabilized the middle east and thrust us into many unwinnable wars, blown through all the home equity they had with home equity credit lines, never saved for retirement, and now expect to be taken care of by social security and medicaid during retirement.

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...

rubicon333• 8 years ago

Yea, this article is really not surprising to anyone who isn't a boomer. I look around and see smart, hardworking people with some of the "best" jobs in the nation (doctors, lawyers, programmers, etc.) who can't afford to buy a home. Between student debt, the cost of living, nearly 50% taxation (and rising in CA), wage stagnation, and real estate greed... it's nearly impossible even for those young people who are doing well. If you ask me, the boomer generation certainly left it (far) worse than they found it.

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.

crdoconnor• 8 years ago

Driving you to this conclusion is part of that plan:

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."

nostromo4• 8 years ago

destabilized the middle east

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...

btilly4• 8 years ago

Theories like this one do not explain how it is that immigrant groups do reasonably well. The history of the USA is filled with people who arrive with no money, poor language skills, sometimes traumatized - and yet wind up doing well within a generation or two.

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?

JumpCrisscross2• 8 years ago

And yet, look where they are today versus blacks. How did that happen?

Some might interpret this uncharitably. To defray that potential, would you mind giving us a hint as to what you've found / are suggesting?

40acres10• 8 years ago

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.

wavefunction• 8 years ago

And yet, look where they are today versus blacks. How did that happen?

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...

guildenstern• 8 years ago

You’re comparing a massive group of people with a comparatively tiny group of people that have self selected for only the most willing and capable of abandoning everything and building a new life from nothing after qualifying to enter the United States. Of course those people are going to be more successful. That alone discredits the point you’re making.

infosample2• 8 years ago

Seems like false equivalence to me. A better comparison would be American blacks who immigrated to Canada or Europe.

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.

ericmcer• 8 years ago

The constant among Vietnamese, Cambodian, Japanese, Korean and other cultures is a really strong family unit. Family owned businesses, parents working hard to educate kids, parents holding high expectations for children etc.

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.

dpkonofa• 8 years ago

There's a pattern that you see emerging in "late-stage" immigrants that are no longer found amongst other minorities in the United States. I believe that this pattern, where minorities share risk to bring about equal success and growth, stems completely from the racial divide that other minority groups in the US have had to fight against. An excellent example of this is immigrants who come to the US, ally with others of the same minority, share housing (even sometimes to the point of breaking the law), start businesses (while breaking several laws along the way), and then bring more immigrants in to help grow the business and then distribute that wealth to those involved. It's very similar to what happened in early European immigration to the US except that these "late stage" immigrants now know exactly what to avoid. They're able to take in all the advantages of being an immigrant while ignoring/offloading the risks associated with breaking the law. There's a reason that a stereotype exists regarding Vietnamese nail salons and, however inaccurate the stereotype may be, it started from this pattern of Vietnamese immigrants moving to the US, starting up nail salons, and bringing in hundreds more Vietnamese immigrants to grow these businesses while sheltering illegal practices that could be hidden by the growth of the business.

Minorities that are already in the United States don't have the ability nor the structure to make this a reality.

azernik2• 8 years ago

Who arrived with no money, poor language skills... and were not pushed into redlined neighborhoods, were not denied credit, and were not rewarded with dropping property values around them as soon as they bought a house and the white folks left.

Immigrants (especially non-White) faced their own challenges, but not those ones.

mikeash• 8 years ago

That link shows Laotians and Cambodians at a significant disadvantage.

imatworkyo• 8 years ago

How did that happen?

Outside of the false equivalence - as posted to great fanfare yesterday :

https://i.redd.it/1j5ek052qit01.jpg

spicymaki• 8 years ago

I hate how statistics are used to bludgeon people. Anytime an article comes out about economic inequality is posted I see the same familiar pattern. Issue is presented, black people are compared to everyone, shit on, dick measuring about how everyone else is killing it in SV (and of course everything (status-quo) is okay), rinse and repeat.

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!

danans• 8 years ago

Everything is against them. Poor language skills, widespread PTSD from what they witnessed, no savings - pretty bad picture.

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.

ggg9990• 8 years ago

It’s because the Cambodians here are a self selected of people who were willing and able (whether money, family support, or hustling skills) to start their lives anew. The blacks are descendants of people forcefully abducted, who were selected mostly for physical traits.

ucaetano2• 8 years ago

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

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.

SlowRobotAhead4• 8 years ago

Out of curiosity... forgetting rates for a moment and just checking on numbers of people, aren't there more white people in abject poverty than black people entirely in the USA?

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.

davidw• 8 years ago

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.

Yes. See: "The Color of Law" - https://amzn.to/2JlHvRT extensively well documented. It's depressing reading though.

thetrumanshow2• 8 years ago

I think once you factor in property taxes for all of those years, it’s pretty close to a wash.

koverda• 8 years ago

What if you factor in rent on the other side of the equation?

prewett2• 8 years ago

There was a detailed article and discussion on that yesterday, and it isn't so straightforward: https://news.ycombinator.com/item?id=16899541

mikeyouse• 8 years ago

Renters still pay property taxes -- they're imputed in the cost of renting a house.

thetrumanshow2• 8 years ago

I’m not comparing it to the cost of renting, I’m simply saying that when I sell my home for $200,000 having bought it in the 1970s, at best it will be nearly break even.

bendmorris2• 8 years ago

That's not really true (something that land value tax advocates will gladly point out) because supply of housing is fixed in the short term. Landlords charge what the market will bear for housing; rent isn't anchored to their actual costs. They bear the burden of increasing costs.

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.

gnarcoregrizz2• 8 years ago

not true in CA, property taxes are basically locked in when you buy a home, and can't increase more than 2% per year.

rifung2• 8 years ago

As we’ve pointed out at City Observatory, there’s an inherent contradiction between the goals of promoting housing affordability and using homeownership as a wealth building strategy. Affordability requires that housing be stable in price; a good investment needs to appreciate. If housing is a great investment, its because its becoming less affordable. If housing stays affordable, it is, by definition, not an investment that generates gains.

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..

Eridrus• 8 years ago

Relaxing zoning rules is an "easy" one. It doesn't deprive anyone of a home.

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.

eecsninja• 8 years ago

Yes, this is unfortunately one of the great mistakes (or intentional deeds, depending on how you look at it) of US economic policy of the last few decades.

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.

elyobo• 8 years ago

Levy solid capital gains taxes retrospectively, use that money to compensate recent buyers. Those that made a killing are still ahead (although less so), those that made losses are compensated.

frgtpsswrdlame• 8 years ago

Yes this article makes some good points but the rhetoric is all wrong. Here, this guy says it much better than I can:

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.

http://www.interfluidity.com/v2/6287.html

blackbagboys• 8 years ago

Phase in high land value taxes (not property taxes) when personal residences are sold

fbonetti3• 8 years ago

This is the correct answer.

mistursinistur• 8 years ago

Why does policy need to be "fair" to investors? New government policies move asset values (including real estate values!) in both directions all the time. Investors -- including homeowners -- are not entitled to an investment that always appreciates.

This belief that we cannot do a thing unless that thing benefits wealthy homeowners is harmful.

WesleyLivesay• 8 years ago

In this case I believe it would have to be "fair" due to the political power of home owners in most areas of the United States. The fastest way to lose every vote from Suburbia is to lower the value of their greatest investment.

rifung2• 8 years ago

Why does policy need to be "fair" to investors

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.

st262• 8 years ago

As a general rule of thumb, screwing people by changing the rules on them harms investor confidence. The promise of future stability is an underrated part of our economy. See the FDIC. This is why many legal changes go to great pains to grandfather the old rules.

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.

uncoder0• 8 years ago

I agree why don't we just make a extremely burdensome property tax for non-primary residence properties that are not worked/workable land such a farm land? Maybe 5x property tax on your second property, 10x on your third, etc. Maybe it only kicks in and ramps up after a set number of months to allow developers to buy properties and develop them for sale but make it hard to hold them for too long in order to get a 'legit' owner in the house who will actually make it their home.

st262• 8 years ago

I guess my first question is, when we say home ownership is a good investment, do we mean it will make you rich? Or that it will keep up with inflation and be cheaper than renting in the long term?

The latter is hardly incompatible with affordability, and can still be considered a sound investment.

hardtke• 8 years ago

To be fair, the people who have massive housing equity generally bought their houses when interest rates were sky high. In the 1970's, when you could buy a decent house in Palo Alto for $50,000, the interests rates were 15-20%. As rates have gone down, the prices have gone up. Mortgage payments as a fraction of income have gone up much less dramatically than the sales prices.

Qworg• 8 years ago

How'd that interest rate fare in the face of A) being able to refinance and B) inflation/rising wages?

The principal/down payment is the first problem - interest rates just increase the cost of money, but get eaten away by time.

drchiu• 8 years ago

I once made the observation that much of the older generation’s net worth is tied intimately with their homes. That if we exclude home equity, the resulting net worth is very little — demonstrating a pattern of poor savings habit and investing. Unfortunately, for the younger generations, they will have to be much more diligent savers and investors as they are now fighting asset price inflation — a problem previous generations didn’t have as much.

hndamien• 8 years ago

Or currency debasement/ asset price inflation.

ethn3• 8 years ago

It's great, it use to be the opposite.

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.

Fauntleroy• 8 years ago

Except over time the young will find it less and less likely that they'll be able to afford a home, up until it's impossible or the system breaks entirely...

ethn3• 8 years ago

Or what the article and research by AEI and Thomas Sowell has implied: you'll be able to afford a house when you're older since nowadays you become more valuable the more knowledge you gain.

so332• 8 years ago

For many centuries, land ownership was (and in fact still is) the largest source of wealth. Historically, it conferred not only wealth but also power. This was the key characteristic of the feudal system.

ethn3• 8 years ago

Land is a store of wealth, that's not the source of wealth. If we look at the Forbes top 20 richest people compilation, we would be hard pressed to point out anyone who made the majority of their wealth through land.

mevile• 8 years ago

Putting the contradiction of an "affordable investment" aside and looking at the high prices: couldn't local governments change zoning laws to encourage building more homes to lower prices? More supply lowers prices right?

MrMorden• 8 years ago

They could, but they don't want to.

bendmorris2• 8 years ago

They certainly could, but they'd be fighting the, generally very politically active, current homeowners every step of the way. Increasing supply will reduce their property values.

Proponents of building more housing need to step up their political activism to match the NIMBY crowd.

so332• 8 years ago

Regulations like mandatory minimum lot sizes and density restrictions make it a lot harder for younger people to buy their own piece of the ownership pie, which creates scarcity, which in turn causes property values to skyrocket even further. I can’t help but see this as a form of regulatory capture.

listenallyall3• 8 years ago

An extended low-interest rate environment is a (the?) major factor in increasing income inequality. Assets become much more expensive, benefiting owners (in this case, of houses and real estate) and hurting those who strive to own. Further, savers are generally barely breaking even with inflation, which leads to less saving.

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.

mancerayder3• 8 years ago

Sure, but high interest rates make money more expensive, meaning less people can afford less house. A factor that impacts people who need to borrow the most (the non rich).

So what's better, high asset prices or high borrowing costs? Something tells me they both even out painfully.

listenallyall3• 8 years ago

Not true, as home prices key around monthly payment, so high rates put downward pressure on prices to keep the monthly payment relatively constant.

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.

MekaiGS• 8 years ago

Slight off topic but the graphs are terrible on the site, could someone smarter than me explain what the blue/red splits on the graphs represent?

nmca• 8 years ago

Homeowners are, disproportionately, voters.

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.

stevenwoo• 8 years ago

I think it's more those with more money can influence lawmakers to make rules more hospitable for making more money. That would explain something like this happening for a long time, that would not be explained by a high percentage of home owners being voters (when it's one big company that owns a lot of homes): https://www.theatlantic.com/business/archive/2018/04/rent-to...

aj7• 8 years ago

The price of a house goes up. It’s called appreciation, but it mimics inflation much more. Except in certain volatile areas, housing has not been an inordinately good investment, but it is an inflation hedge. Housing is illiquid, does indeed depreciate, and often must be relinquished to be “spent.” Lack of savings or income so low it precludes savings are more important than housing as a source of inequality.

awat3• 8 years ago

This! The inflation hedge also makes the wealth gap exponential for those without the capital to get in the real estate game for lack of a better term. The capital needed to get into a home with traditional financing seems to go up by the month and is essentially moving the finishing line for those millenials saving for homes.

kbutler• 8 years ago

This seems to ignore confounding factors:

- 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.

madengr• 8 years ago

So why are housing prices rising? Maybe it’s the young people willing to pay ever increasing prices. Maybe they are responsible for shooting themselves in the foot?

gnarcoregrizz2• 8 years ago

low interest rates + rising wages. it seems like people will buy as much home as they can afford. so yes, in a sense, people are collectively shooting themselves in the foot by leveraging their homes as much as possible, but then again you need a place to live.

pascalxus• 8 years ago

It all comes down to supply: why is this such a hard concept for people to understand. It's not old people's fault, unless they're the voters who keep preventing housing from being built. When you limit supply, prices MUST go up: there's no other way it can go.

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.

taurath2• 8 years ago

Current homeowners are incentivized to always vote for their property values to go up - so they always vote to prevent new housing to be built, in the name of neighborhood character.

bcohen5055• 8 years ago

Where I live in Southern California the problem is that supply is kept down by people renting out their first home and buying a 2nd. The houses appreciate at 4% per year and the rent increases at nearly 8% so it's win win for owners. On the flip side renters continue to spend their money renting and paying the mortgage of their landlords. The 2010 census reported Irvine was nearly 50% rentals [1].. In one of the largest planned communities in the US that is a problem.

[1]https://en.wikipedia.org/wiki/Irvine,_California (see census data for 2010)

azernik2• 8 years ago

Anecdotally, they are the voters who keep preventing housing from being built.

digi_owl• 8 years ago

One claim about homeownership that i ran into is that "homeowners do not riot".

Thus homeownership is pushed as a kind of pacification of the urban population.

nostrademons3• 8 years ago

Much of this is predicted by classical economics.

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.

fbonetti3• 8 years ago

This isn’t predicted by classical economics. This is the result of the housing supply being artificially constrained by zoning laws. If developers could build a 40-story high rise next to a single family home, housing would be dirt cheap. On top of this, rent control further disincentives developers from constructing new properties.

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.

nostrademons3• 8 years ago

Still predicted by classical economics. Zoning laws change the elasticity of supply. Housing in a completely free market should have relatively high elasticity; if the price is too high, build more! Zoning laws artificially constrain the supply and so create a monopoly/oligopoly situation, which is what allows owners to charge economic rents beyond the marginal cost of producing more housing.

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).

dnomad3• 8 years ago

Yeah, this is not predicted by classical economics.

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...

nostrademons3• 8 years ago

See reply to sibling comment:

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.

nerfhammer• 8 years ago

economics posits that individuals are rational actors, not that societies always make good collective decisions, and further economics describes many conditions under which collective decision-making can end up disastrous for all involved despite or because of each individual acting in their best interest along the way.

pattrn• 8 years ago

I must be missing something in this article. It seems to say that older generations have more net worth than younger generations. Its graph depicting net worth by age scales almost linearly. Isn't this how it's supposed to work?

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?

rabidrat• 8 years ago

People should start spending their retirement at some point. The article points out that in the 80s, the 45-65 group had the most money, more than the 65+ group. But apparently older people are now hanging onto their still-appreciating homes, and only when they die will they pass on their homes to their (also now aging) children.

RickJWagner• 8 years ago

The secret to wealth is easy.

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.

rland• 8 years ago

Housing is both mandatory and the largest expense for nearly everyone. It's a tremendous damper on "spending less." If the secret to wealth was easy when those books were written decades ago, it is much less easy now.

Gerontopoly: Homeownership, wealth, and age

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