I’ve made this point before, but it bears repeating in light of a new study:
One of the things that always seems to go missing in discussions of gentrification and its effect on housing prices is, well, the existence of a gentry class. It’s not just the top 0.01 percent or even one percent that are bidding up housing prices, but also the top few percent. Given either the economic status or aspirations of most commentators, it’s a complete mystery why the obvious isn’t stated (not really): if incomes were more equally distributed, housing prices in housing-limited areas wouldn’t be so ridiculous.
Here’s the new findings (boldface mine):
A new paper from a Federal Reserve economist explores a potentially alarming way these pressures affects people’s financial lives. The paper from Fed economist Jeffrey Thompson suggests that Americans are borrowing more to keep up with wealthier members of society — particularly when it comes to buying and financing homes.
Thompson’s study offers a window into a less widely understood aspect of rising inequality. It’s not only that rising wealth at the top might make people lower down the income scale feel inadequate. It’s also that people who are aiming to live in the town they always have might have to pay more for housing because the wealthiest there have managed to boost property values for other top-percenters, but income gains among the less well-off have lagged…
Using this data for each state, Thompson sought to determine how rising incomes at the top could increase overall mortgage indebtedness — measured as the ratio of an individual’s debt payments to his overall income. His statistical analysis revealed a link between increases in income at the top and higher payment-to-income ratios.
As the 95th percentile cutoff in a state rises by $10,000 — controlled for factors like cost of living and tax — the ratio of the bottom 95 percent’s income spent paying back a mortgage increases by about .32 percentage points. It’s worth noting that from 1989 to 2013, the 95 percentile cutoff in many states — including Colorado, Connecticut, Massachusetts, Minnesota, North Dakota (and the District of Columbia) — increased by more than five times as much.
Didn’t realize the Fed was populated with BernieBros. Heh.