How Property Investment Is Widening the Gap Between Rich and Poor
It’s no secret that house prices are increasing, and any homeowner who has recently carried out a desktop valuation will be able to verify this. But the subject of real estate is an interesting one, and it’s perhaps one of the broadest subject matters out there. On one hand, housing is recognised as a basic human right; it’s something that everybody is entitled to. On the other hand, it’s a trillion-dollar industry that has become a vehicle that helps the rich to get richer. In this article, we’re going to explore how property investment is widening the gap between the rich and the poor.
The Capital Barrier
The idea of investing in property is out of reach for most of us. Simply owning a home in current economic conditions has become challenging enough, so it’s no surprise that owning multiple homes is, to the majority, nothing more than a pipedream.
The main obstacle is of course capital. With house prices skyrocketing and rental fees at an all time high, most people simply don’t have enough money left over at the end of the month to pay off an investment property.
Where previous generations benefitted from average house prices being far closer to the average salary, allowing them to acquire second properties, property investment is well and truly reserved for those earning far beyond the average.
Increased Demand and Higher Prices
Whether you’re eyeing up a property as a first-time buyer or you think that same property would make a welcome addition to your property portfolio, the point is that every day, homeowners and investors are competing for the same pieces of real estate. It’s not like there is one market for investors and one for first-time buyers.
And this competition simply ramps prices up further, which is where we start to see the vicious cycle of ever-increasing property prices. If a first-time buyer loses out on a property to an investor, there’s one less property on the market. Now consider this happening hundreds of times a month across the whole country, and you’ll see that the number of first-time buyers looking for property is increasing while the number of properties available is decreasing.
As any economist will tell you, high demand and low supply mean one thing: an increase in price.
The Role of Governments and Policymakers
So the ultimate question is, what next? Surely the world can’t sit back and watch more and more workers become priced out of getting on the property ladder. Well, if New York is anything to go by, it appears not.
The state recently passed a proposal to hike taxes on luxury properties owned by those who reside outside of New York. Individuals who simply use New York real estate as a wealth generation strategy will be ordered to pay more tax, making the New York real estate market less attractive to foreign investors.
Whether this is enough to drive foreign investors out of New York remains to be seen and how this impacts commercial property valuations. However, it does appear that this could be a sign of things to come in an attempt to close the gap between rich and poor.
Final Thoughts
It’s no secret that property investment centres around wealthy individuals. But the frightening increase in house prices makes this truer than ever before. Ultimately, the end result is that not only is it harder to become a property investor, but it’s harder to become a property owner. The cycle that we touched on previously means this is showing no signs of slowing down either. While more radical policies could play a part in making property investment a less attractive proposition, it remains to be seen just how much power can be returned to the first-time buyer.
