We’re Not In A Real Estate Bubble
It’s far worse than that
It’s far worse than that
I attended a self-paced high school, which meant that, so long as my assignments were handed in on time, I rarely had to go to class. In fact, I skipped 56 days of my final semester, moved to another town, and got my real estate license.
I graduated from college before high school.
I bought a fourplex when I was nineteen, renovated it, and flipped it. I became a real estate broker the next year, and a mortgage broker after that. I’m what you might call house-obsessed.
But not in that HGTV need-to-constantly-move-and-renovate sort of way. More in the how-the-heck-is-everyone-supposed-to-afford-to-survive if we keep letting governments, banks, and landlords take over housing?
The death grip
The first day of real estate college, our professor made a joke:
“Mortgage comes from two Latin root words: Mort meaning death, and gage meaning grip.”
It’s not a funny joke.
It’s actually quite sobering.
A mortgage is a death grip.
And it’s a raw deal, too: You put up real cash as a down payment, plus your house and your credit as collateral, and what does the bank do? It literally creates credit — fake money — out of thin air, which you then have to pay back, with interest and hard-earned real money. And if you miss just 3–6 payments in a row in a 25–40 year window, they take your house away, ruin your credit, and make you start again.
And it’s getting worse
Despite a global pandemic that killed millions and left tens of millions unemployed and underemployed, house prices are at an all-time high.
Canada, one of the most real estate-obsessed nations on earth — and one of the least affected by the 2008 crash — is up 42+% in the past year alone.
Even in Ethiopia, where my wife grew up, a three-bedroom detached house in the capital can cost you $1+ million USD.
The new paradigm
Until recently, most people’s house price paradigm looked something like this:
A house’s market price is the maximum amount that a buyer can expect to afford over the next 25–40 years. But because wages are flatlined and purchasing parity is the same as in 1978, the only rational explanation for this current price explosion is a giant debt bubble.
But what if the paradigm — the baseline assumption of what dictates house prices — is changing?
What if the newly-redefined value of shelter is the maximum amount of annual rent that can be extracted per unit of housing?
For years, banks and ultra-elites (bankrolled by years of money-printing, corporate socialism, and bailouts) have been using their wealth to take control of the world and rent it back to us.
Instead of buying and owning products, now we’re all just renting “services.”
After all, why should people like you and me build equity when a multinational corporation can build equity instead?
So long as your monthly housing-as-service payment remains relatively “affordable” (AKA half your income), the ownership class doesn’t care if it’s rent instead of a mortgage. Thus, house prices continue to rise against all reason as private equity and rent-seeking investors outbid families for control of shelter. Sure, there might be more real estate price crashes, but they’ll just be bigger versions of 2008 — buying opportunities for the hyper-elite. Your home is now a future hedge fund investment. As reader Valerie Kittell put it:
“Airbnb-type models altered the market irreversibly by proving on a large scale that short term rentals were more lucrative than stable long-term residents.”
We’re in the middle of a paradigm shift to corporate serfdom.
What can we do about it?
House owners: Stop enriching corrupt banks — pay off your death-grips and never look back.
Parents and grandparents with means: Help your kids get a start in housing before it’s out of their reach forever. Otherwise, they’re at the cold mercy of landlords, who are quickly switching to Airbnb and temporary lets.
House sellers: Put a perpetual restrictive covenant on your deed that states all future purchasers can only be owner-occupiers.
Landlords and Airbnb hosts: Seriously consider doing the right thing and increase housing stability by selling your extra house to a real individual, couple, or family.
Concerned citizens: Pressure your mayor and city councilors to ban Airbnb and start building thousands of new owner-occupier-only units.
Municipalities: Ban commercial activity (IE Airbnb) in residential neighborhoods.
Governments: Ban all for-profit residential real estate investment. This is, by far, the #1 most important thing we can do if there’s to be any hope for housing stability in the future.
In a truly civil society, human necessities like shelter wouldn’t be commodified. When you allow speculation and investment in residential real estate, you end up where every other capitalist sector ends up —with a handful of monopolists owning ALL the assets in the industry.
If we keep on our current course, 99% of the global population will be housing insecure within two generations. We’ll own nothing and supposedly be happier, but I don’t believe them for a second. I don’t want to live in a world where people are forced to be homeless because they can’t afford to live in a society that’s economically engineered to impoverish them.
So let’s see if we can be civil for a change. If not, we’ll see millions more houseless people flood the streets of LA, New York, Chicago, Houston, London, Paris, and thousands of equally unaffordable cities.
When that happens, we’ll forget civility was ever even an option.