I reside in Orlando, a city laden with socio-economic facades which echo the theme park set pieces for which the city is best known – Shiny on the outside and hollow on the inside. If you tilt your head up in the downtown area you’ll see glossy clean structures that speak to affluence, but it’s difficult to ignore the contradictions on street level where homeless swallow their pride and beg for money, which is not unlike most American cities. It is not uncommon to observe homeless, near retirement age, bound to wheelchairs, who announce their desperation with pleas for help on crudely rendered signage in hopes a passerby will show more empathy than a system which contributed to their plight. I’m not sure what kind of society allows its older folks with physical impediments to beg for money on the street but it’s not one I endorse.
The vacancy rate in Orlando is near 18%, which prompts the immediate question why are there unused housing resources made for human beings to have shelter while people fight the elements just outside the walls. High priced condos and houses lay fallow all over the city, some owned by rentiers waiting for the next monied tourist to show up, others priced too high for a city whose median household income is a few thousand below the national median. The pattern of hoarding is common among the wealthy who’d rather watch a thing rot than sell it for less than they think it’s worth. Such actions raise demand in local markets and inflate housing costs for the lower classes, something the rich love because it means more money for them that they’ll never live to use, a worthy cause to be sure for their blind egos.
Since the 2008 housing bubble the price to income ratio has been climbing back to bubble territory. Americans have been led to believe when their house increases in value it benefits them, it doesn’t. Elevated housing costs have been shown to drive homelessness more than poverty rates. The effect of housing inflation also means increases in interest paid on the principle loan, private mortgage insurance rates, property insurance, realtor commissions, closing costs, and property taxes. It’s a lose lose lose lose lose lose for the people and a giant win for predatory capitalism.
The result for most is becoming “house poor” when costs inflate faster than incomes rise. It’s estimated around 76% of Americans are living paycheck to paycheck so one can imagine there are many in a constant state of anxiety wondering if they are going to make next month’s hefty mortgage or rent payment.
For those that took an Econ 101 course you may recall that housing is rife with inelastic demand which means that demand stays fairly constant even as prices inflate, this happens with any good or service that becomes a necessity, and since going homeless is pretty far down on the list of something most want it means consumers will pay until they can’t anymore. In a more ethical world all essential needs with high levels of inelastic demand would have some price controls built into the economic system to avoid predatory price gouging, as businesses tend to price goods according to the most they can suck out of you. Unfortunately, in our style of capitalism those with leverage are allowed to prey upon consumers with only a semblance of competition holding prices down.
There are a few major entities who directly benefit when housing prices are kept high, and some, if not all play a role in inflating prices.
The State: In Florida there are counties that do satellite surveillance on backyards to see if there is an unstated addition to a home or anything sitting on the property that might raise the property tax owed. There are people who sit around doing this all day as a job so it becomes evident they are aggressively seeking dollars which come in the form of elevated appraisal prices of homes so they may in turn collect more property tax. The state has a hand in establishing what has appraised value and then can reward itself for making that value higher.
Hedge funds and real estate investment trusts (REITS) go around buying up commercial and residential real estate with the intent of raising demand in a market and selling off their holdings incrementally at a higher price due to said increased demand they helped create. The idea is simply to buy low and sell high, but hedge funds don’t need a roof over their head, people do. This is a reminder of the travails of neoliberal economics which features a detachment of all consequences for economic actions, they seek only profit with no regard for human problems. These outside investors weasel their way into communities and leech out capital from local populations.
Real Estate Industry: Realtors work on commission based on a percentage of the sale, thus they are always looking to close the biggest deal possible. The higher the price, the more they make, while everyone else loses in the long term with unaffordable housing. Six percent is a pretty standard commission rate and if you work out a little calculation on a the median home price of 188k they take 11k off the top when selling your home. With a median US per capita income of around 30k that means you’ll work for over 4 months of your life just so someone can sell you something without lifting a finger in real world production. That’s some magical salesmanship to be worth that price. These are paper pushers facilitating transactions that should be made straight forward and at low cost for all people who own real estate.
To boot, the National Association of Realtors (NAR) is routinely one of the biggest contributors to lobbying efforts currently ranking 2nd on the list of top lobbyists. Looking at their advocacy it looks like a mixed bag of more amoral neoliberal thinking, do what’s best for number one and disregard externalities. Classic middle-men. According to OpenSecrets NAR’s top outgoing receipts support politicians who are mostly a bunch of neocons, like this guy Sean Duffy – a Trump supporter and former reality star, another fine example of “the least among us” who rule over the people and rig the system for the wealthy.
It should be noted NAR also has an ethics section on their website, which is a funny thing for a bunch of people lobbying primarily for their own benefit. Supplanting democracy is evidently not unethical to capitalists.
I want to say this again for rhetorical effect – Supplanting democracy is not unethical to capitalists.
Banks: Banks artificially drive up demand by putting more “unqualified” buyers in the market raising market prices to the level of credit offered. Banks technically own most homes, as 70% are mortgaged, meaning 70% of the residential properties in the US are a few collective missed payments away from the banks owning it all outright. Homeowner equity destruction and slews of late payments aren’t all that unlikely if we see more layoffs after markets bottom out again, and if market trends continue that seems like a certainty at some point in the not too distant future.
Banks charge interest on properties where if the loan is carried to completion in a 30 year mortgage around double the initial purchase price will have been paid. But typically the cost of the initial labor and materials have been paid for numerous times over during the course of the most home’s existence, and like realtors, the banks didn’t lift a finger to build or maintain that structure. They put digital numbers into a computer and through the magic of fractional reserve banking property becomes a never ending money machine.