Gen Z is coming for you house, boomer!
The young couple upstairs have high paying jobs in tech and finance. Eventually they’ll move out. Can they afford to buy? Are developers building enough homes to meet demand? These questions bombard us daily. Because the real estate industry makes money from financing and new construction; those are the questions they answer.
Are those the questions that matter?
Nationally, the census tells us that in 2016 the percentage of people in the U.S. over the age of 65 was 15%. Within ten years it will be 21%. How long will they — can they — hold onto their large homes?
If the old people in my neighborhood don’t sell, my upstairs neighbors have less to buy. How many homes is this?
There is almost no room left to build new construction in Cambridge. I believe that is true for every neighborhood the young people upstairs would want to buy in. It doesn’t matter how low interest rates fall. It doesn’t matter how many houses are built in hicksville, Massachusetts, young professionals want homes here, in Cambridge — especially those with young families who have no interest in high-rises.
Sure, the problem with low inventory isn’t lost on anyone. What I want to focus on is how this situation is creating what looks like an asset “bubble” but may be something else.
In Cambridge, there are two competing interests. The young who want property. The old, roughly 11% of Cambridge (and probably growing), who don’t want to change their lives. Of course, to say they have an “interest” is wrong-headed. They don’t have interests, they have fears about moving. So few move. It doesn’t matter how much their house increases in value, they’re past the age of selling to spend.
In a sense, part of the income inequality problem is a property inequality problem. It may explain much phenomenon of late — difficulty in filling jobs, rising homelessness, political polarization. If young people so much as breathe on property owners they’re pilloried as “socialists”.
So far, the prevailing attitude is — if I can put it glibly — no, you can’t force someone out of their 4,000 foot home in Cambridge. If you want a home, go build and buy it 50 miles away. Will that persist indefinitely, or are there pressures that will free up Cambridge real estate?
Old home owners generally live off equity dividends, bonds, social security and mortgage refinancing — money used to purchase labor from young people. We must bear in mind that without a real person driving a truck the garbage wouldn’t be picked up or food delivered.
There’s a social contract that old people can buy labor from young people as long as young people aren’t overburdened by a stagnant economy.
It seems, lately, the young prefer to stay home.
Perhaps the young won’t work until they get paid more to maintain a home (say picking up garbage) than a person with dividends can afford to pay to keep it up.
That is, if garbage collection is the only expense of a home and the collectors charge more than the homeowner makes from their Exxon dividends, eventually the homeowner will have to sell their large home to the young and productive.
Maybe there’s a misdirection perpetrated by boomers. They say, the Fed controls inflation through money supply. The young answer back, no, we will control it through our decisions to work.
The pandemic may be accelerating the economic shift from wealth back to young productivity, or the economy of the old back to the economy of the young.
How long can property owners keep the game running in their favor? I have no idea. I do think it should be obvious by now that low interest rates and a construction frenzy in high rises may not work because in the end.
The new inflation siege may be upon us.