I must admit I found Erick Erickson’s post from a couple of days ago to be interesting, at least in part. It begin with a quote from the Wall Street Journal, which I don’t read, and extrapolates from there.
From individuals with smartphones and a few thousand dollars to pensions and private-equity firms with billions, yield-chasing investors are snapping up single-family houses to rent out or flip. They are competing for houses with ordinary Americans,
Here’s the problem, corporate America and particularly private equity America has decided that Americans no longer want the American dream. American middle-class homeowners no longer need homes to buy. So instead, they’re buying up every available property on the market and then forcing you to rent because the home is too expensive for you to buy, the land is too expensive for you to build, and lumber prices have gone up so much, you’re forced into a rental market even though you want to be a homeowner. These corporations were so focused on if they could do it, they haven’t asked if they should do it and they’re driving up home prices. They’re gentrifying neighborhoods against the neighbors’ will. They’re driving up property prices and they’re forcing you to pay more and more. If you want to own land or buy a house, you are forced to move further and further away from even the suburbs out into rural America.
It’s fascinating how Erickson’s prediction parallels Professor Turchin’s observations of secular cycles, isn’t it? As Turchin’s agrarian societies enter the disintegrative phase, the prices of land skyrocket and land accumulates to holders who rent it out for profit to the farmers. This is often caused by the farmers having children and dividing their land into less and less sufficient plots for the kids – usually the males. Perhaps we’re headed for a Turchin crash.
But also notice Erickson’s clinging to the status quo. I half expected him to decry the advent of the electric vehicle as well, wailing that the extinction of the fossil-fueled vehicle (hah! I kill myself!). Why is home ownership the dream of all Americans still? Perhaps it’s not. After all, an iconic emblem of the Millenials is the story of the job seeker who turned down a cushy job because it wasn’t on a bus route, much to the bewilderment of their would-be boss.
And finally, if prices are being driven up, perhaps this is a good thing. This may motivate people to increase their valuable skill sets, rather than sitting around drinking beer, gossiping, or praising their divinity. Don’t get me wrong, religion is a carrier of morality, but at some point you should admit that you have learned that morality and really don’t need to go to church. Increasing the skill set makes it more likely you can buy a house, at least in Erickson’s future.
This is all going to come crashing down. At some point, people are going to decide they are sick of renting and want to buy. They’re going to be priced out of markets and people are going to leave. They’re going to move further out into rural areas. They’re going to buy houses there where these corporations aren’t and the property prices are going to crash. You’re going to have whole empty suburban corridors with collapsing homes because corporate America never asked if they should do this. They never asked if they should wipe out the American dream. Congress will likely act on this and I’m in favor of it. Private equity companies are putting rental markets into pension funds.
These pension funds run by private entities for the government now demanding that you yourself rent your house instead of buying your house. It takes away the dream of homeownership and an available pool of equity from American consumers. This forces them to be renters for life and drives up rental prices. This is not sustainable long term. I can see it coming. After the collapse, the major hedge funds and private equity groups will go to the government for a bailout and can do it because they have access to subsidized guarantees and access to the FDIC that you, the individual home buyer do not have. They can get away with it. It’s not a free market. It’s not really even capitalism. It’s cronyism and they’re calling it capitalism.
A capitalist society without morality is no better than a communist society. Sure, more people are elevated out of poverty, but a whole lot of rich people take advantage of everyone else just like in communism. You’ve got to have a real free market. This isn’t one. Not only that, you’ve got to have some grounding in morality and be able to question whether or not you should do something instead of can you do something. This has been going on now for a number of years and it is escalating. The government is going to step in. When they do, it’s going to be a burden on all of us, unless we stop it now instead of waiting until it festers out of control.
The application of capitalism to the private sector seems like such a stretch, doesn’t it? Especially for such a speculative prediction on his part.
But it’s worth taking a thought about it.
