How Skyrocketing Prices Kill Homeownership and Threaten Democracy

Land ownership has shaped civilizations from their beginnings, with a constant interplay between great powers—the aristocracy, the state, the Church, the emperor—and those below them. History has oscillated between periods of greater dispersion of ownership, and those that favored greater concentration.

Today, we live in an era of ever-greater consolidation, not from knights in armor, or Communist cadres, but from the forces of big capital and an ever-more intrusive regulatory state. The result has been record-high housing prices, well above the increase in incomes resulting in a systematic decline in the ability of people, particularly the young, to buy their own house as prices rise even in less expensive areas. Supply also faces great constraints, due in part to labor and supply-chain woes and the demand shock of the pandemic and remote work.

Unless reversed, young people will be forced into a lifetime of rental serfdom. The assets that drove middle-class stability, wider social benefit, and subsidized comfortable retirements, will likely not be available to them. Property remains key to financial security: Homeowners have a median net worth more than 40 times that of renters, according to the Census Bureau. Shoving prospective homeowners into the rental market not only depresses their ambitions, but it also forces up rents, which hurts poorer households and even solid minority neighborhoods.

But this impacts far more than just finances. Low affordability and high rents tend to depress the fertility rate, contributing to what is rapidly becoming a demographic implosion in many countries. More important still, dispersed property ownership has long been intimately tied to democracy while concentration tends to characterize autocracies, whether of the state-dominated variety or that of big capital.

How we reverted to a feudalistic state is a complex and infuriating story. Critical to this change has been a planning theology that holds density itself as intrinsically good and that purposely seeks to block housing on the periphery for societal, and environmental reasons. Where implemented, this approach has driven up prices, as evident in places like Sydney, Vancouver, San Francisco, London, and Paris. This has been a boon to speculators and well-heeled developers, but makes middle-class housing unaffordable to the middle class and intensifies the poverty of poorer residents.

The “pack and stack” planning “vision” has been widely adopted, even in land-rich countries like Australia. This ad from the New South Wales government promises an urban paradise of sorts:

This, as many Sydney-siders will tell you, is not exactly what happened. Instead of flocking to the city, research by the Massachusetts Institute of Technology/Queens University (Canada) estimates that nearly 80 percent of Australia’s metropolitan population lives in automobile-oriented suburbs or exurbs. Further, more than 75 percent of employment growth in Sydney and Melbourne occurred outside the central business districts between the 2011 and 2016 censuses. But due to planning restrictions, taxes, and fees, in the decades since these regulations have been imposed, Sydney has become one of the Anglosphere’s most expensive cities, with prices that have placed most prospective homeowners on the sidelines. Indeed, under these regulations, house prices have tripled relative to incomes creating conditions where two-thirds of Australians now believe that the next generation will never be able to afford a home.

These trends are distressingly common across the higher income countries. The Organization for Economic Cooperation and Development (OECD) reported in Under Pressure: The Squeezed Middle-Class that the future of the middle-class is threatened by house prices that have been growing “three times faster than household median income over the last two decades.”

This shift reflects, at least in part, the movement of big capital into housing, including foreign investors. In 2014, French economist Thomas Piketty produced a widely referenced analysis of world inequality. Soon after, Matthew Rognlie of Northwestern University found that virtually all of Piketty’s increased inequality was attributable to increased house values. In the United States over the past decade, the proportion of real-estate wealth held by middle-class and working owners fell substantially while that controlled by the wealthy grew from under 20 percent to over 28 percent.

This trend will be worsened by moves on Wall Street to buy up single family homes, further raising their price, and then rent them out, particularly to priced-out millennials, has reached record proportions. Rather than help middle-class families this supports the rentier class—which Piketty calls the “enemy of democracy”—assuring them of steady profits by collecting rents while the middle class loses its independence.

Some densifiers suggest that forced densification will lower prices. In reality, virtually all the regions of the world with the highest house prices have regulations designed to encourage development in the inner urban rings and discourage or even ban construction on the more affordable peripheries. Former World Bank principal urban planner Alain Bertaud describes the associated consequences, noting that urban growth boundaries and greenbelts put “arbitrary limits on city expansion” and that “the result is predictably higher prices.”

Research in Vancouver, Canada and other locations has shown an association between densification, on one hand, and higher land prices and diminished housing affordability on the other. Research on two decades of densification projects in Brisbane—Australia’s fastest growing city—found that housing costs rose even with little private development interest. In the US, meanwhile, higher density urban areas have substantially higher housing costs. Around the world, more severe housing and land-use regulation has been associated with losses. Both the OECD and Rognlie urged a review of such regulations which has been associated with severe losses in housing affordability.

Planners may not have lowered prices or lured people to cities, but they have managed to stomp on the aspirations of homeowners. Even before the pandemic, this hit the young in particular including in the United States, Canada, and Australia. Perhaps nowhere is this hostility to market demands more intense than in California, where oligarchic finance has allied itself with progressive planning. The general thrust of the state’s regulatory regime seeks to limit “sprawl” to reduce greenhouse gasses from cars and make our communities environmentally more sustainable.

The result? Coastal California’s housing prices relative to incomes have risen nearly three times the national average, and now the state suffers from the second lowest homeownership rate in the US after New York. Most impacted have been California millennials suffering homeownership rates that are diminishing more quickly than elsewhere in the country.

Nor does densification have any of the purported environmental benefits now being pushed by the permanent DC urban-centric establishment, such as the Brookings Institution and the Biden administration. The pro-density Terner Center projects that if California’s cities followed the density guidelines, the impact on emissions would be at best one percent. This at a time when we have better, less disruptive ways to address emissions. For example, promoting at-home and hybrid work reduces greenhouse gas emissions without embracing a density mantra which is widely unpopular in most communities.

Rather than impose a density agenda, it is now imperative to embrace the growing pace of suburbanization. Despite all the talk of “back to the city,” suburbs and exurbs account for more than 90 percent of all US major metropolitan growth since 2010. Between 2010 and 2021, the suburbs and exurbs of the major metropolitan areas gained two million net domestic migrants, while the urban core counties lost 2.7 million. Overall, according to a recent MIT study, roughly 80 percent of the nation’s metropolitan population lives in auto-oriented suburbs and exurbs, while barely eight percent live in the urban core, and another 13 percent live in traditional transit-oriented suburbs.

The increased move to the suburbs and smaller cities was evident even before the pandemic, and now it has accelerated. According to Census Bureau data, cited by Brookings’ Bill Frey, most large metros are shrinking. Redfin reports that roughly one-in-three moves by their readers was to another region, the highest level ever, and mostly to less expensive, and usually less dense, locales. This clearly makes the current planning religion particularly misplaced.

These trends can only be amplified by the shift to online work and the continued decline in the historic appeal of dense central business districts, which across the West account for roughly 13 percent of all jobs. Early in the pandemic, perhaps 42 percent of the 155 million-strong US labor force was working from home full-time, up from 5.7 percent in 2019, and had exceeded the share of workers commuting by transit. New research from Jose Maria Barrero, Nicholas Bloom, and Steven J. Davis suggests that, when the pandemic ends, a “residual fear of proximity” and a preference for shorter commutes (or none at all) will mean that roughly 20 percent or more of all work will be done from home, almost four times the already-growing rate before the pandemic.

This is not an extravagant claim. Studies from the National Bureau of Economic Research and from the University of Chicago suggest this could grow to as much as one-third of the workforce, and as high as 50 percent in Silicon Valley, something reflected in the openness with which most tech firms accept new workstyles. Roughly 40 percent of all California jobs, including 70 percent of higher-paying ones, could be done at home, according to research by the Center of Jobs and the Economy. Moreover, advances in artificial intelligence and virtual reality are likely to improve the popularity and feasibility of remote working.

In the process, central business districts like New York, Chicago, Boston, and Washington have all suffered far more than surrounding suburban or sunbelt business districts, losing both residents and businesses. New York has been disappointing, largely due to a rise in crime, employee reluctance to give up a more home-centered lifestyle, and growing acceptance of at-home or hybrid work among employers.

Even San Francisco, with one of the nation’s strongest central business districts, has suffered rising office vacancies, now three times the pre-pandemic levels. This is enough to fill the Salesforce Tower, the city’s tallest building, 12 times. Things should improve, but most companies there, according to a Bay Area Council survey, expect employees to come to the office three days a week or fewer, with barely one-in-five seeing a return to a “normal” five-day work week.

This shift is likely to be resisted by many managers who want to frogmarch people back to the office. Yet, some 60 percent of US teleworkers, according to Gallup, wish to keep working remotely. Attempts to reverse this situation may prove difficult, due to deep-seated labor shortages. “You see tons of bold statements. Companies saying, ‘No remote work.’ Some companies are saying, ‘We’re getting rid of all of our offices,’” says Bret Taylor, president and chief operating officer of Salesforce. “There’s like a free market of the future of work, and employees are choosing which path that they want to go on.”

These workplace trends suggest the suburbs and exurbs are the future. Nearly two-thirds of US millennials prefer this kind of location, which is historically tied to single family ownership. Where millennials go has implications for birthrates, which have fallen as housing prices have risen. Families overwhelmingly favor less dense housing and frequently decide to have children once they buy a house. A recent National Bureau of Economic Research study draws this conclusion, seeing a 10 percent increase in home prices leads to a one percent decrease in births among non-homeowners in an average metropolitan area. In China’s Yangtze River Delta (Hangzhou-Shanghai-Nanjing), research shows that fertility rates decline materially as house prices increase, with a similar finding regarding rents.

The prevalence of singledom and the culture of childlessness are often portrayed as matters of choice or even superior environmental enlightenment. But in America, at least, attitudes about family are not significantly different from prior generations, albeit with a greater emphasis on gender equality and later births. Among American women aged 40–44, barely six percent are “voluntarily childless.” The vast majority of millennials want to get married and have children.

High prices and density are poison to fecundity. Cities with the most expensive housing and the most density are becoming childless demographic graveyards. Rich Asian cities like Hong Kong, Taipei, Beijing, Shanghai, and Seoul suffer fertility rates often barely half of replacement. This also applies in the West in high-cost cities such as New York, Paris, London, Los Angeles, and San Francisco. In Manhattan, the ultimate high-cost elite urban core, the majority of households are not only childless, but nearly half are single, according to the latest American Community Survey (US Census Bureau) data.

Ultimately, as housing challenges reduce birthrates, we will likely face economic stagnation. In the United States, workforce growth has slowed to about one-third of the level in 1970 and seems destined to fall even more. These figures are even more catastrophic in very low-fertility countries like Japan, Germany, and most importantly, China. China’s working-age population (those between 15 and 64 years old) peaked in 2011 and is now projected to drop 23 percent by 2050, with 60 million fewer people under the age of 15—a loss approximately the size of Italy’s total population. The ratio of retirees to working people is expected to have more than tripled by then, which would be one of the most rapid demographic shifts in history. By 2100, reports the South China Morning Post, the country’s population could be halved.

Perhaps even more critical may be the political and social impacts of unaffordable housing. From its earliest days, democracy depended on a class of small property owners, whether in Greece or Rome, or modern Britain, America, Canada, and Australia. The earliest democracies in Athens and Rome rested on an assertive property-owning middle class. Aristotle warned about the dangers of an oligarchy that would control both the economy and the state; in fact, an ever-greater consolidation of wealth played a role in undermining Greek democracy and the citizen-led Roman Republic. By the end of the Republic, over 75 percent of all property was owned by roughly three percent of the population, while over four-fifths owned no property at all.

Self-government resurfaced largely where a property-owning middle class emerged to challenge the feudal order—first in Italy and the Low Countries, and later across western and northern Europe, and then in the “new worlds” of North America and Oceania. The idea of dispersed ownership was sharply opposed by aristocracies and later by communist planners who saw the appeal of owning for the masses but preferred to impose “a concrete spatial agenda for Marxism” in small apartments densely built near public transit, with close proximity to the workplace.

These objections to suburbs and homeownership have been picked up by density advocates from the tech-funded YIMBY movement in California. Home ownership, according to progressive mouthpiece Vox, “could be turning you into a bad person,” by making you concerned about living near slums and drug dealers. According to a Minnesota City Council Member, those who talk of “neighborhood character” and “historic preservation” may be “participating in structural white supremacy.”

Until recently, such collectivist views were unpopular across the political spectrum. The ideal of broadly dispersed property ownership was promoted by politicians on both the Right and Left in most high-income countries. “A nation of homeowners, of people who own a real share in their land, is unconquerable,” said President Franklin D. Roosevelt. He saw homeownership as critical not only to the economy but to democracy and the very idea of self-government.

Today, this faith in self-determination and the democratization of land ownership is being reversed, despite the wishes of the great majority in the United States, Europe, Australia, and Canada. We can either work to expand our communities, preferably in more sustainable ways, or we can accept that future generations will be ever-more dependent on subsidies or affordable unit set-asides.

An economy where most people, blocked from ownership, rely upon wealth transfers from the lucky few cannot easily coexist with a tradition of individual initiative and self-governance. Addressing the housing crisis is not only about homes and hearth but may determine the nature of our society for decades to come.