Social mobility drives home sales volume

As the income chasm widens between the top 1% of earners in the U.S. and everyone else, social mobility likewise continues to decline, according to the chairman of the Council of Economic Advisers, Alan Krueger.

Krueger points to a number of indicators that income inequality is indeed present in the U.S. and that it is affecting the ability of the populace to thrive economically – to purchase such things as homes at present prices.

From WWII to the 1970s, virtually all income brackets in the U.S. grew at the same pace. In a divergence since the 1970s, income growth for the top fifth of all earners has outpaced growth in the middle class significantly, while income growth in the bottom quintile (20%) actually shrunk over the past 40 years.

The rate at which this consolidation of wealth in the top tier has taken place is staggering. From 1979 to 2007, the share of the total earned income in the U.S. that goes to the top 1% has increased by 13.5%. Essentially, this means that the share of income going to the top 1% is now greater than the total amount of income earned by the entire bottom 40% of jobholders in the U.S.

Many argue this depiction of income inequality is taken out of context. So the argument goes, nobody starves and everyone gets a basic education in the United States. However, the very lucid and real estate related point that Krueger makes is that this type of income inequality is affecting the social mobility of the middle class, a phenomenon that he refers to as the Gatsby Curve. [For Paul Krugman’s analysis of the effects of income inequality, see his recent New York Times blog post, The Great Gatsby Curve.]

Despite the fact that income inequality existed in the U.S. before the 1970s, at that time those in the lower income brackets had a much greater chance of transcending their earnings pigeonholes than they do today. Compared to other developed nations, the U.S. is now ranked the lowest in terms of social mobility — a very, very bad thing for real estate.

In other words, the rich are indeed getting richer and today’s Gatsby Curve has resulted in less opportunity for those who are not part of the club to break the glass income ceiling.

first tuesday take: In the midst of the income inequality and social mobility debates in the U.S., real estate professionals, including the almighty real estate trade union, have spoken loudly by remaining conspicuously silent. [For more information on the lack of Realtor involvement in the income inequality debates, see the October 2011 first tuesday article, Unions occupy Wall Street — where are the Realtors?]

Such reluctance to engage in a debate that clearly affects the financial viability of an entire generation of real estate professionals — 2007-2026 — reveals the extent to which the trade union is beholden to the 1%. Rather than lobbying to make homeownership more fair and accessible for all, the trade union deploys tactics to artificially increase prices in an effort to curry more favor with morally corrupt legislators and abusive mortgage lenders.

Today’s reality of social immobility directly threatens the livelihood of all real estate professionals in California, to say nothing of its impact on other industries across the U.S. As of October 2011, there were nearly 200,000 active real estate agents licensed in California employed by a broker. If the ability to purchase a home becomes relegated primarily to the top 20% of California’s potential homebuyers, there will simply not be enough deals for a head-of-household real estate agent to sustain a living, except perhaps in the very limited high-tier property niche. [For more information on the challenges posed by the high-tier niche, see the January 2012 first tuesday article, High-tier real estate’s foothold in California.]

The California homeownership rate is already on a steady decline, having dropped from 60% during the boom to its present 55%, and heading full speed for around 50% by 2016. The short-term diagnosis is that homeownership has declined due to the rampant long-term joblessness of this Lesser Depression. [For more information on the homeownership rate in California, see the collection of first tuesday Market Charts, The demographics of homeownership.]

But the unmentioned social immobility that may now have become inherent to the U.S. will render ours a culture of renters with the potential of putting tens of thousands of real estate professionals out of a job. Thus, property management will be the last refuge of the mid-tier agent. This has the potential of wiping out the neophyte fly-by-nighters that joined the real estate ranks during the boom, for to be successful in property management one must set aside the notion of fast and easy money whilst keeping their nose to the proverbial grindstone.

re: “The rise and consequences of inequality” from the Center for American Progress