Why Housing keeps getting more Expensive

In 2023, homeownership became the least affordable it has been in over a decade. Statistics say a record number of individuals spend more than 30% of their income on rent.

The New York offices of real estate property managers and tech firms, along with private equity investments, play a pivotal role in the skyrocketing home prices across the U.S. Over the past 20 years, we've seen home prices soar. Today, the median home costs around $400,000, requiring the average American earning $80,000 to spend over 40% of their income on housing. This is unprecedented. Just 80 years ago, the average house price was $18,000, which adjusts to roughly $180,000 today, while incomes were significantly lower, at about $6,000.

Homeownership has become roughly twice as expensive for the average person since your grandparents bought their first house. The rental market tells a similarly dire tale, with over half of all renters spending more than the recommended 30% of their income on housing. Alarmingly, more than a quarter of renters pay over 50%. This situation escalates to the point where a full-time minimum wage worker struggles to afford even a basic one-bedroom apartment.

The conventional narrative flowing through media outlets points fingers at supply and demand dynamics. The simplification suggests that rising prices stem from insufficient housing stock and an influx of buyers. While this explanation seems intuitive, it is fundamentally flawed. Home prices often defy actual supply. They increase year after year, independent of new construction. The real determinants of housing prices lie in the availability of finance for both consumers and producers, heavily influenced by government policies since the 1980s.

The rental market, especially, reveals the inaccuracies of the basic supply and demand story. In 2022, rent for one-bedroom apartments rose by 17% over two years. When questioned, a prominent figure from the New York Times attributed this rise to increasing incomes. This was misleading. Wages for millennials and Gen Z are stagnating or even declining.

Tech companies like RealPage and Yardi have developed algorithms that catalyze rent increases. These systems allow landlords to recommend rent prices and optimize occupancy rates in ways that maximize profitability. For instance, algorithms once encouraged 97-98% occupancy rates. Now, landlords aim for around 94%. Keeping some units empty boosts net revenue by 3-4%, allowing rent increases on occupied units.

As turnover rates rise, landlords are incentivized to evict tenants and raise rents faster. This strategy, described by RealPage’s CEO as a successful revenue drive, demonstrates the cruelty underpinning this system. As the CEO noted, revenue gains of up to $10 million can come at the expense of displacing individuals from their homes.

In summary, it’s clear that rent prices are less about the availability of homes and more about the financial machinations of property managers and landlords, guided by algorithms. Meanwhile, the deeper financial context reveals a fundamental shift in real estate ownership. The scene isn't dominated solely by small-scale landlords anymore. Private equity firms show substantial interest, buying up single-family homes in record numbers and massively inflating rent prices.

The government's involvement in creating a market for mortgage-backed securities has further removed housing from being simply a home. Investing in real estate has evolved into a means of maintaining liquidity for capitalists, all while ordinary individuals bear the cost.

To conclude, housing is no longer related to useful living spaces but has become a commodity used for wealth accumulation. To truly tackle the housing crisis, we need more than just wage increases or tenant protections. We need to reconsider the entire structure of housing as a commodity. Until housing is recognized as a public right rather than an asset, many will remain trapped in a cycle of unaffordable costs and mounting debt.