Part I - How Inflation Has Robbed People Of Their Home Ownership
So much of our society's social justice attention recently has been focused on one big question, but behind that question, there is another one that sits as the brewing tea bag of animosity between the generations and the realities that they face.
That question? Why is it that Millennials and Gen Z'ers cannot buy a home?
The answer is long and complicated, but it basically involves three parts:
1) Inflation robbing them of the value that their money had
2) A refusal of companies, cities, and counties to build or zone starter housing
3) A refusal by first time home buyers to accept a "starter house"
Today's article will focus mainly on the inflation part of this question, the others will be dealt with in the coming days. I warn you, however, that if you are reading this expecting to find someone "blaming the rich," you would be correct, the trick is that it is not the rich that you expect to be blamed.
Let's start with a handy dandy chart. This chart will show you the value of a dollar from 1900-2020. That's a 120 year span, so it will give us a nice broad view of things:
As you can see, there has been an overall drop in the dollar's value, but the key part that I want to focus on is the 1970 number. In 1970, you had $6.39 of buying power in today's dollars for every dollar you make today. To put that in perspective, $18.00 per hour now would have been the same as making $2.81 back then.
The $1.60 per hour minimum wage was equivalent to $9.70 today, which is almost 2 dollars per hour higher than most minimum wages in purchasing power.
So how is it that we have arrived at a place where the value of our money is so far down that we cannot afford the same amount of stuff even though we are making many multipliers of money more per hour?
The answer, of course, is inflation.
The average inflation rate in the US since 1970 is 3.86%.
The average wage increase per year in the US since 1970 is 2.14%.
This means that every year the price of everything you buy is 1.72% more expensive.
That does not sound like a lot, but over 52 years, that's an 89.44% increase in the price of everything in comparison to your wages, and that is before we factor in compounding.
Yep, everything is more than twice as expensive as it was in 1970. You are not imagining it.
Why could a young family more easily afford a starter home in 1970? Because their money was more solid and so the home was equivalently half the price. If the price of the home you were trying to buy was half of the price it is listed at, you could likely afford it too.
So who is to blame for that?
Well, that answer is simple, the ones who are printing the money of course.
This gap, believe it or not, only gets bigger the closer you get to today. Inflation rates are fairly constant but raise rates have hovered closer to 1.2% since 2000 creating a differential of 2.66% each year. That means that it is only going to get worse.
Oh, yeah, lets not forget about COVID related inflation that is taking off as well. We are seeing historic level inflation across all economic sectors.
The result of this?
Well, it means that homes will only become less and less affordable for the younger generations.
In fact, just hit up Google and you will find a plethora of articles talking about how home ownership might just be a thing of the past and that large corporate landlords may be the only ones who can afford houses that they do not inherit.
You see, companies are not going to reduce the ultimate price of their product. When inflation goes up, they raise the price of their products to match it. Yet they do not give the same raise to their employees as the price raises that they made.
Why you ask? Simple, the labor market is overflooded. We could write an entire series as to why in a new series of articles, but let us just note that it is. If you will not do the job for $7.25, then move on, the next guy will. So wages stagnate and inflation continues, and the gap between what you make and the home you can afford just continues to grow a deep and wide chasm between them.
Now, there are other factors, cities wanting greater property taxes than starter homes provide, cities allowing for the demolishing of older neighborhoods with affordable prices in order to rebuild with bigger and more "beautiful" housing, and young people continuing to turn away from starter homes leading to builders not being willing to build neighborhoods of them anymore.
But as I said those will be dealt with later.
In the end, you should blame rich people, yet the rich people you should be blaming by the end of this article are the rich people serving in Congress and the Presidency who keep adding and adding to this inflation and worker over population.
I guess the bottom line is we should blame the rich, but we just have to make sure we are blaming the right rich people.
Next - Part II - How cities, counties, and companies work together to increase home prices.