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The reason why income inequality doesn't matter when compared to wealth inequality is this: If you're a high-income earner in a big city and you want to buy a

The reason why income inequality doesn't matter when compared to wealth inequality is this: If you're a high-income earner in a big city and you want to buy a house/apartment, you're going to have to take on massive debt and you will end up paying double what a wealthy person would pay for the same house/apartment (due to interests). In effect, prices on the housing market are not determined by income-earners; they are determined by wealth-owners. To buy a house (or anything which is in limited supply), income-earners are forced to compete with wealth-owners; and wealth owners can afford to drive market prices way up - This is in part because wealth owners, on average, do not value money as much as income-earners do. Also, as mentioned above, they don't have to factor in interest rates when making purchasing decisions.

charlesdm 10y ago
As someone with a few very wealthy friends, this is not always true. It does however help to close a deal faster than someone who wants to purchase the same property using a mortgage. 1. Interest rates matter, because if they're low, they'll usually invest their money elsewhere / pay the interest / pocket the difference. They'll often do a deal "cash" (meaning, without debt) and refinance later. 2. Using debt to offset taxes matters too.
- jondubois 10y ago
  But surely you must agree that wealthy people do drive up property prices more than mere high-income earners. Just look at the case of Mark Zuckerberg's purchases in Palo Alto (as an extreme example): First he bought a house for $7 million (which was widely regarded as massively overpriced at the time). Then he ended up buying all adjacent properties for $30 million. In a few short years, he single-handedly contributed to a massive increase in property prices in his entire neighbourhood. This is essentially the story of San Francisco's property market over the past 10 years.
  - charlesdm 10y ago
    Of course, because high income != wealth. It's only the first step. It could become significant wealth if they saved + invested it well, but most high earners are excellent at spending it all. Just look at the amount of bigtime basketball / football players who remain with nothing a few years after they stop playing.
- nstj 10y ago
  this could benefit if you qualified what very wealthy means
  - deleted 10y ago
    [deleted]
yummyfajitas 10y ago
This can't be correct. Inequality is the result of a very small number of people holding a large amount of wealth, typically in the form of productive investments (e.g. factories, infrastructure, etc). But if the number of people is small, the amount of housing they can consume is tiny. For example, NYC has 5,600 ultra high net wealth individuals. Assuming a wealthy person rents 10 flats, these rich people only have the same effect on housing supply as NYU (57,000 students). http://marketurbanism.com/2016/06/27/do-the-rich-cause-high-rents/ http://marketurbanism.com/2016/06/27/do-the-rich-cause-high-... The more inequality you have, the less competition you face from wealthy people. If we replaced 5,600 rich people with 1 mega-rich person, would that mega-rich person suddenly rent 67,000 flats, taking an additional 10,000 off the market?
- hammock 10y ago
  Most of the real estate owned by UHNWI's in New York is not owned by one of the 5,600 living in New York. Rather the owners are from Russia, or China, or the Middle East, etc.
  - yummyfajitas 10y ago
    There are about 200k UHNWI in the world taking the most generous definition wikipedia provides. Supposing they are split across Tokyo, Shanghai, Moscow, Beijing, NYC, London, Mumbai and Delhi (to name only the expensive megacities I can name off the top of my head), that's 200k UHNWI out of 195 million. https://en.wikipedia.org/wiki/Megacity https://en.wikipedia.org/wiki/Megacity https://en.wikipedia.org/wiki/Ultra_high-net-worth_individual https://en.wikipedia.org/wiki/Ultra_high-net-worth_individua... Assuming each of them rents 10 flats, they might consume 1% of the total housing supply.
    - hammock 10y ago
      Fair point although we are conflating households with individuals. Anyway, drawing a line at UNHWI is arbitrary, we are interested in cash buyers driving up prices. So another group to look at would be non-primary residence. The average across the five boroughs is 29%. And in midtown Manhattan it reaches 44%[1]. So we are getting to the big numbers now that you are looking for, big enough to move prices in a substantial way. [1]http://mobile.nytimes.com/2015/01/11/realestate/new-york-citys-emptiest-co-ops-and-condos.html http://mobile.nytimes.com/2015/01/11/realestate/new-york-cit...

charlesdm 10y ago

As someone with a few very wealthy friends, this is not always true. It does however help to close a deal faster than someone who wants to purchase the same property using a mortgage. 1. Interest rates matter, because if they're low, they'll usually invest their money elsewhere / pay the interest / pocket the difference. They'll often do a deal "cash" (meaning, without debt) and refinance later. 2. Using debt to offset taxes matters too.

jondubois 10y ago
But surely you must agree that wealthy people do drive up property prices more than mere high-income earners. Just look at the case of Mark Zuckerberg's purchases in Palo Alto (as an extreme example): First he bought a house for $7 million (which was widely regarded as massively overpriced at the time). Then he ended up buying all adjacent properties for $30 million. In a few short years, he single-handedly contributed to a massive increase in property prices in his entire neighbourhood. This is essentially the story of San Francisco's property market over the past 10 years.
- charlesdm 10y ago
  Of course, because high income != wealth. It's only the first step. It could become significant wealth if they saved + invested it well, but most high earners are excellent at spending it all. Just look at the amount of bigtime basketball / football players who remain with nothing a few years after they stop playing.
nstj 10y ago
this could benefit if you qualified what very wealthy means
- deleted 10y ago
  [deleted]

yummyfajitas 10y ago

This can't be correct. Inequality is the result of a very small number of people holding a large amount of wealth, typically in the form of productive investments (e.g. factories, infrastructure, etc). But if the number of people is small, the amount of housing they can consume is tiny. For example, NYC has 5,600 ultra high net wealth individuals. Assuming a wealthy person rents 10 flats, these rich people only have the same effect on housing supply as NYU (57,000 students). http://marketurbanism.com/2016/06/27/do-the-rich-cause-high-rents/ http://marketurbanism.com/2016/06/27/do-the-rich-cause-high-... The more inequality you have, the less competition you face from wealthy people. If we replaced 5,600 rich people with 1 mega-rich person, would that mega-rich person suddenly rent 67,000 flats, taking an additional 10,000 off the market?

hammock 10y ago
Most of the real estate owned by UHNWI's in New York is not owned by one of the 5,600 living in New York. Rather the owners are from Russia, or China, or the Middle East, etc.
- yummyfajitas 10y ago
  There are about 200k UHNWI in the world taking the most generous definition wikipedia provides. Supposing they are split across Tokyo, Shanghai, Moscow, Beijing, NYC, London, Mumbai and Delhi (to name only the expensive megacities I can name off the top of my head), that's 200k UHNWI out of 195 million. https://en.wikipedia.org/wiki/Megacity https://en.wikipedia.org/wiki/Megacity https://en.wikipedia.org/wiki/Ultra_high-net-worth_individual https://en.wikipedia.org/wiki/Ultra_high-net-worth_individua... Assuming each of them rents 10 flats, they might consume 1% of the total housing supply.
  - hammock 10y ago
    Fair point although we are conflating households with individuals. Anyway, drawing a line at UNHWI is arbitrary, we are interested in cash buyers driving up prices. So another group to look at would be non-primary residence. The average across the five boroughs is 29%. And in midtown Manhattan it reaches 44%[1]. So we are getting to the big numbers now that you are looking for, big enough to move prices in a substantial way. [1]http://mobile.nytimes.com/2015/01/11/realestate/new-york-citys-emptiest-co-ops-and-condos.html http://mobile.nytimes.com/2015/01/11/realestate/new-york-cit...