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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 investmen

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...
    - yummyfajitas 10y ago
      From the article: And perhaps surprisingly, the data indicated that “the vast majority of pieds-à-terre are middle class,” Mr. Miller said. “They are owned by people who have a studio in the city and a home in the suburbs, or maybe it was their first apartment that they chose to keep and rent it out.” What does middle class people becoming landlords have to do with the rich? Insofar as a flat is being rented out (as many of them are, according to the article), it's not even reducing housing supply.
pjmorris 10y ago
I think you're not accounting for real estate investment vehicles, e.g. REIT's and hedge funds. It's possible to own something without consuming it. Your hypothetical weathly person might choose to buy 67,000 flats and gain monopoly power over their rents.
- yummyfajitas 10y ago
  In much the same way, Walmart/Tesco/etc reduce the food supply. How can a poor person possibly get enough to eat when they must compete with the near infinite spending power of Walmart? There must be mass starvation! Similarly, if you own real estate and rent it out you aren't reducing the housing supply. Your hypothetical weathly person might choose to buy 67,000 flats and gain monopoly power over their rents. You don't get monopoly power over rents by buying 67,000 flats (out of a millions).
  - pjmorris 10y ago
    People usually don't take out loans to buy groceries. The money/credit supply matters when buying houses. Note, too, that I'm arguing that the price is affected, not the supply. As the GP points out, those who can pay cash for a house are at significant advantage to those who must borrow. As I repeat, houses can be bought as investments as well as 'consumables'. Maybe buying 67,000 houses isn't enough to monopolize the market, but I'll argue that the 1.7T the Fed has injected in to the housing market over the last decade through its purchases of mortgage-backed-securities [1] has had an effect on house prices similar to the 'wealth-owner' the GP describes. On a smaller scale, are you willing to argue that property values in Palo Alto aren't affected by purchases like Mark Zuckerberg's? [2] [1] https://www.federalreserve.gov/releases/h41/current/h41.htm#h41tab1 https://www.federalreserve.gov/releases/h41/current/h41.htm#... [3] http://money.cnn.com/2016/05/25/technology/mark-zuckerberg-palo-alto-house/ http://money.cnn.com/2016/05/25/technology/mark-zuckerberg-p...
    - deleted 10y ago
      [deleted]

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...
  - yummyfajitas 10y ago
    From the article: And perhaps surprisingly, the data indicated that “the vast majority of pieds-à-terre are middle class,” Mr. Miller said. “They are owned by people who have a studio in the city and a home in the suburbs, or maybe it was their first apartment that they chose to keep and rent it out.” What does middle class people becoming landlords have to do with the rich? Insofar as a flat is being rented out (as many of them are, according to the article), it's not even reducing housing supply.

pjmorris 10y ago

I think you're not accounting for real estate investment vehicles, e.g. REIT's and hedge funds. It's possible to own something without consuming it. Your hypothetical weathly person might choose to buy 67,000 flats and gain monopoly power over their rents.

yummyfajitas 10y ago
In much the same way, Walmart/Tesco/etc reduce the food supply. How can a poor person possibly get enough to eat when they must compete with the near infinite spending power of Walmart? There must be mass starvation! Similarly, if you own real estate and rent it out you aren't reducing the housing supply. Your hypothetical weathly person might choose to buy 67,000 flats and gain monopoly power over their rents. You don't get monopoly power over rents by buying 67,000 flats (out of a millions).
- pjmorris 10y ago
  People usually don't take out loans to buy groceries. The money/credit supply matters when buying houses. Note, too, that I'm arguing that the price is affected, not the supply. As the GP points out, those who can pay cash for a house are at significant advantage to those who must borrow. As I repeat, houses can be bought as investments as well as 'consumables'. Maybe buying 67,000 houses isn't enough to monopolize the market, but I'll argue that the 1.7T the Fed has injected in to the housing market over the last decade through its purchases of mortgage-backed-securities [1] has had an effect on house prices similar to the 'wealth-owner' the GP describes. On a smaller scale, are you willing to argue that property values in Palo Alto aren't affected by purchases like Mark Zuckerberg's? [2] [1] https://www.federalreserve.gov/releases/h41/current/h41.htm#h41tab1 https://www.federalreserve.gov/releases/h41/current/h41.htm#... [3] http://money.cnn.com/2016/05/25/technology/mark-zuckerberg-palo-alto-house/ http://money.cnn.com/2016/05/25/technology/mark-zuckerberg-p...
  - deleted 10y ago
    [deleted]