For a view of the inefficiencies of the free market, there’s no clearer view than the U.S. housing market, where there are as many as 29 empty homes for every homeless person.
By Bob Larson
Source: In These Times
Today’s gigantic class cleavages bring to mind Matthew 8:20, where Jesus describes his persecution: “The foxes have holes, and the birds of the air have nests, but the Son of man hath not where to lay his head.” This description could increasingly also apply to the wrong end of our lopsided capitalist society, which shows itself nowhere more clearly than in housing.
The Wall Street Journal has characteristically thorough reporting on the current housing market, in which it observes “a severe shortage of midtier apartments,” meaning those “aimed at the working class.” This “dearth of lower-priced apartments” has driven up rents for lower- and middle-income-earners, with a market segment average of $845 a month—a daunting figure for many of today’s part-timers and even full-timers.
The reason for this “severe shortage” is pure market economics: “Construction costs are generally too high to justify building new complexes for low- and middle-income tenants. …The difference in costs between installing granite countertops and stainless-steel appliances is so slight compared to buying land and installing elevators that economists say developing a luxury apartment and a midtier one comes out roughly the same.” This has meant that “the supply of less expensive apartments…had decreased 1.6% since 2002. Over that time, high-end apartment inventory has increased 31%.” Not surprising, since rents for the higher-income occupants average $1,702. This isn’t exactly a glowing review of capitalism’s alleged ability to meet consumer demand, regardless of income level.
These market dynamics are especially important for today’s generation of young “millennials,” as the business press observes they tend to rent more, “younger Americans either can’t afford to buy a house or don’t want to.” They’re willing to accept small apartment sizes also, and for reasons that reflect the economic realities of the new generation: “They have diminished expectations, less access to financing and a strong desire to stay in cities.” The tendency for normal working families to be squeezed by high rents out of safe neighborhoods, or into tinier spaces, is another example of the invisible hand giving the finger.
Condo or castle?
On the other hand, a convenient place to observe how the other side of the market works is “Mansion,” a weekly section of the elite-oriented Wall Street Journal, which profiles various different playground properties of elite management and the 1%. Like a lot of print and online media that cover housing, it’s part journalism of lifestyle trends and part naked sales pitch. But the window it provides on the day-to-day life of the ruling class is fascinating.
A conspicuous Mansion headline, “Masters of the Universe,” refers to the infamous phrase used to describe Wall Street power-brokers. But this reference is to the incredible scale of high-end master suites, “With square footage that rivals the average American home.”
The features are gobsmacking: “Amenities have included everything from small kitchens to beauty salons and pedicure stations. Some clients have requested private pools just off the master, separate from the home’s main pool.” At another development, private suites have separate “laundry rooms, small gyms or Pilates areas and ‘super closets’ within the master.” These super closets are their own embarrassment of riches: “closets have evolved from utilitarian storage spaces to showpieces modeled after designer stores, with fireplaces, seating areas and separate dressing rooms.” Illustrated with enormous color photos (often software-generated in the small print), you can easily see that several of these condo and mansion designs have bedroom suites that alone exceed the median modern US house size of 2300 square feet.
Elsewhere, the Mansion section observes that in New York City’s always record-setting property market, “At least two new developments in Manhattan are asking $1 million for a single parking spot,” not failing to notice that this is “about four times the cost of an average single-family home in the U.S.” Spaces can be had for less, but these particular concrete patches are associated with units sporting super-high price tags themselves.
A more old-world example comes from the Financial Times, where a recent edition of its high-living Town & Country section profiles a Scottish Duke with a fair-sized castle in the Argyles. The Times is eager to show a self-effacing, status-disregarding picture of the Duke, encouraging us to see the particularly ludicrous institution of Anglo-Scottish aristocracy with Downton Abbey post-status charm. But the local history is more realist: “To the distress of some Inveraray residents, the whole town was moved in the 1770s to give the castle a more secluded setting.”
Today His Grace is most concerned with fending off the increasingly left-leaning Scottish National Party’s proposals to increase the tax on landed estates like his, and split up the great family fortunes—although estates managed through corporations are exempt. But while he hopes to avoid any splitting of his assets, the Duke also confesses he seldom uses his castle’s two-story library: “I’m just not a book person.”
For the urbane London CEO needing a break from city noise, the WSJ Magazine recommends the “Soho Farmhouse,” actually a fantastically expensive members-only rural retreat with a country club, ice rink, horse stable, football field, event barn, boathouse and tennis courts. To ease rich members into their relaxation time, “a hidden camera scans license plates as guests enter the property,” and “guests are handed cocktails as their vehicles are whisked away…guests can specify their height and foot measurements when checking in online to ensure that they are given properly sized bicycles and Wellington boots for their stay.”
Knowing its audience, the magazine mentions an “Added bonus: If guests don’t want to make their own cocktails, they can summon one of two 24-hour roving milk trucks that have been converted into portable bars with bartenders on hand.” Look, no one appreciates the appeal of a roving bar more than me. But 160,000 kids will die from cheaply-treatable diarrhea-related diseases this month, and these fun cash-burning novelties are pretty obscene to African mothers watching their kids die from conditions that could be cured for far less than an executive’s artisan cocktail.
No vacancies, more vagrancies
But the gaping chasm in housing classes is most dramatically seen by comparing the often-mentioned number of empty houses and apartments, relative to the number of homeless citizens living on the streets or shelters around the United States. Real numbers can be looked up—the Census Bureau’s homeownership survey found that in the first quarter of 2015, 17.3 million housing units were vacant, excluding properties only vacant for part of the year. (Notably, the Mansion survey of gigantic master suites notes that these condos and mansions will often “most likely be a second residence for the potential buyer.”)
The number of homeless Americans is of course somewhat harder to pin down, with the Department of Housing and Urban Development in its Annual Homeless Assessment Report for 2014 (the most recent available) finding 578,424 people homeless on a given night. However this HUD number is considered to be at best incomplete, as its “point-in-time” data reporting tends to underestimate the issue. Nonprofits and advocacy groups like the Urban League approach the number in a longer time frame, trying to estimate how many people experience homelessness over the course of a year. The numbers found through this approach are startlingly different, with older research suggesting numbers around 2.3 million, reflecting high turnover among the homeless population.
The most gross calculation from this data would suggest a ratio of 17.3 million year-round vacant units to 2.3 million homeless, or about 7.5 units per homeless individual. Using the HUD’s more conservative “Homelessness measured on a single night” data would give us an even more insane 29 homes or apartments for each homeless person!
Obviously, numbers anything like these point to a hugely irrational economic system, where people, including families with kids, are spending the nights in dangerous shelters or on the streets while millions of empty apartments and houses sit silently still.
This staggering inefficiency of housing markets throws the irrationality of capitalism into stark relief. Much like crumbling bridges and the unemployed construction workforce, the market economy’s failure to bring these economic factors together is pretty damning. Were Christ to return in our capitalist epoch, He’d need to ante up a lot more than the Word to find a place to lay His head—unless He, like other young Americans, had “diminished expectations” for housing.
About the Author
Rob Larson is Professor of Economics at Tacoma Community College in Washington State, and author of Bleakonomics: A Heartwarming Introduction to Financial Catastrophe, the Jobs Crisis and Environmental Destruction. Follow him on Twitter: @ironicprofessor.