Citizen Marin

This is why you can’t afford to buy a house

This is why you can’t afford to buy a house

Americans are desperate for more affordable housing. Yet 1.4 million residential properties were vacant as of 2017’s third quarter. Even more telling: 75 percent of those vacancies weren’t owned by a former occupant, but by an investor.

Welcome to America’s new housing crisis.

To understand real estate, you first need to understand land, which occupies a very weird place in market economies. Most goods and services respond to changes in price signals: The price goes up or down depending on whether demand or supply is stronger. It’s a self-correcting mechanism. For example, if a wheat shortage drives up the price per bushel, that price will fall when more wheat finally comes to market.

Not so with land. No matter how much the price changes, the supply remains fixed. Which means the price can’t self-correct.

Now throw skyrocketing inequality into the mix. A certain slice of the population just keeps getting more and more money — so much money that they don’t know what to do with it all. If they keep it in a bank account, it won’t grow — in fact, it will likely shrink with inflation. So they’ll need to invest it, preferably in a diverse portfolio of stocks, bonds, and — you guessed it — real estate.