Whether or not it’s properties or jobs, our goals are shifting additional out of attain yearly | Mark Blyth

I traveled to New York City for the first time since the pandemic began in August to visit friends who had just bought their first home. They’re firmly in the upper middle class and in their 40s. They took out a 1.5 million mortgage So far, so typical. Owning assets comes late these days.

On the second day of my visit, I saw a group of twenty and thirty year olds sitting together in a local park (the type that was lit with sodium lamps to prevent drug trafficking). They had gathered around a banner announcing a meeting of the local tenants’ rights union. Almost every member of the group looked like they could have appeared on the pages of an Ivy League magazine. All of the bars were white. It wasn’t your neighborhood.

I asked my host to explain this. She said real estate investors would buy single-family homes, level them up, and build fancy new blocks of flats. In view of the stagnating supply of housing and the increasing demand for housing, local rents were “crazy” and relatively wealthy residents founded tenants’ associations. “Housing is now an asset class for the super-rich,” she said. “What do you expect?”

We’ve all got used to the claim that housing is an asset class today, but few of us really think about what that means or how we got here. One person who has done this is Brett Christophers, who figured out how and why a home is no longer primarily a place to live.

Before the financial crisis, residential real estate became an asset class through securitisations. As films like The Big Short showed, bankers pooled the streams of income from individual mortgages into bonds that were then sliced, diced, and sold. This worked well until the mortgage industry ran out of good borrowers and moved into the subprime stage. The resulting mortgage crisis has shown investors that securitizing mortgages is easy but risky. It was safer, but more difficult, to acquire and rent out the underlying assets – the houses. It is about viewing, evaluating, buying, renovating and finally renting out individual properties.

Before the crash, this model was simply too time-consuming and too small to interest asset managers. But after 2008, thousands of homes were sold in foreclosures as people struggled to pay their mortgages. This opened up the possibility for asset managers to buy many properties at once. With new websites like Rightmove and Zillow, which allowed buyers to evaluate properties en masse, businesses could now appraise, appraise, buy and then rent out tens of thousands of properties.

This shift occurred when the supply of new housing collapsed while the demand for rental housing was higher than ever. The returns on these investments were enormous. Unsurprisingly, a lot of smaller investors got into the game and bought out properties on the outskirts – which explains the upper-class tenants’ association I came across.

It may be hard to feel sorry for the elite Brooklyn college graduate. But transforming living into an asset class is just one of the economic pincer movements people get caught up in today. The other is the dwindling supply of “good jobs” that once made investing in higher education worthwhile. Today your home is not just someone else’s capital; Your investment in education and moving to a place like Brooklyn to get the wages you need to make it through are goals that seem unattainable each year.

The story that has long been told to explain the persistent inequality in the United States revolves around two things. First, the so-called “university wage premium”, which regards qualifications as assets. Degrees impart “knowledge skills” that guarantee graduates a good job – the return on their assets. If you don’t graduate, your income will go down.

The second part of the story is the fact that for the past three decades pretty much all of the growth has been in cosmopolitan cities, where knowledge-based companies that generate the high profits required to pay high wages are banding together (San Francisco for technology , New York for Finance). This drives up property values, which depresses incomes even among top earners, who are often heavily indebted due to tuition fees. That also explains why my friends didn’t buy their first home until they were 45.

But this story of inequality is incomplete. A political economist named Herman Mark Schwartz recently explained why. If high profits make it possible to pay high wages, what if the “knowledge economy” is really just the concentration of profits on a really small number of companies?

Think Facebook, which is buying up competitors, Apple, which is suing Samsung for patents, or the importance of top brands for profit margins. All of this – made possible by high legal and technical entry barriers – puts cash in the hands of some top companies like Amazon, Google, and a few big banks that don’t really employ a lot of people, especially in “good jobs”. .

Apple, for example, is worth more than many countries, but only employs 147,000 people. Many of these employees are retail workers who aren’t high earners, despite Apple making $ 24 billion in the second quarter of 2021 alone.

Lower down the food chain, many of the suppliers to such firms still employ decent numbers and pay decent wages, but most of them are under pressure to cut costs. So most of the jobs that are created even in growth cities are in low-profit companies whose business models are based on squeezing as much out of the workforce as possible and paying them low wages.

In short, the pressures that used to affect those on the lower end of the income spectrum are growing upwards. Income from college degrees has flattened out while student debt continues to rise. Tenant rights are now a white, bourgeois issue, and for the vast majority, the ability to find a good job to pay the rent seems increasingly inaccessible.

Meanwhile, the front runners continue to retreat, in part due to their ability to turn basic needs of life into assets that generate their income.

The pincers of inequality in the US are now squeezing the upper middle class. Will that finally change US politics or will it just fuel anger? Unfortunately, I’d bet on anger.