Economic Inequity Meets Home as an Investment

Housing affordability is the biggest economic problem facing the young generation. The underlying forces that drive price are always supply and demand. The question of course is why is supply not meeting demand.

The US population has been growing at a relatively steady rate of ~1% since the ‘80s. That would amount to ~3 million per year. And approximately ~1 million single family homes are being constructed per year. At a rationale of 3:1 for single family homes, we are dancing at the corner of a shortage but not by a large margin.

Despite this, home prices have skyrocketed by 300% since 2000, while the average inflation rate during that period was only 75%. Clearly, something is amiss in the housing market.

Enter wealth inequity and real estate investments. Very wealthy individuals and even wealthier investment funds around the world looked at the housing market and decided that it is a stable income producing investment. And started buying up the supply. This creates an artificial demand hike which results in an imbalance in the market that we see today.

If you ask me, we are only at the beginning of this trend. Real estate market in other developed countries is often even worse than the one in the US. Buying a home is largely out of question for people in the middle class, and often even the upper middle class.

However, there are policy measures that can help mitigate the problem. Lowering tax rates for homeowners who live in their homes and offering preferential mortgages backed by the government are two such policies that can help. I don’t see the political will in Washing today.