The Implosion of the Retirement Contract

by Eric Schliesser on February 13, 2024

One structural source of weakness in contemporary liberal democracy is that it does not seem to be able to solve some important, even bread and butter, policy challenges.  That it does not do so with the threat that global warning involves is, while highly regrettable, no mystery. It’s very difficult for democracies to take non-existing voters’ needs seriously, especially when there are powerful lobbies who have an interest they don’t. But other sources of democratic disenchantment are more puzzling.

I have in mind, especially, the accessibility of housing in popular, urban environments relative to income of younger workers, especially. I call this the “accessibility problem.” People find themselves living with their parents or with many roommates for financial reasons long after they had expected to do so. This is true in most OECD countries (see here).+

For a long time I used to think this was caused primarily by a toxic combination of rent-control, restrictive zoning laws (and building codes), mortgage deductions, and easy money by central banks (which lead to asset price inflation): all of which reduce supply and increase price of housing as population grows. Perhaps, as our very own John Quiggin suggests, lack of investment in social housing, too. Undoubtedly all of these play a contributory role. But even in places where these causes are absent or less present the accessibility problem is a hot political issue.

Somewhat, paradoxically perhaps, the root cause of the accessibility problem is itself political. For, as is well known (I warmly recommend Fischel’s Zoning Rules), in many jurisdictions local government and property-owners that are local voters have an interest in keeping land and property values high. For local governments land is directly and indirectly a major source of revenue (and among the few they control directly). And bourgeois property owners (like myself) benefit greatly from increasing property values (despite the increased taxes that follow). This is familiar enough. (They are occasions where land values and property values need not reinforce each other, but these need not concern us here.)

Depending on one’s political ideology one has a tendency to emphasize one or another of the causes listed so far. Politicians and their echo-chambers have responded by scapegoating immigrants, asylum seekers, foreign students, and (foreign) real estate speculators. All the scapegoats have been mentioned, for example, in Dutch political life during the last few years. In North America one may also hear frequently about environmental regulation and activists in this context. (In the UK about the Green Belt, etc.)

So much for set-up. What’s peculiar about all of this is that ordinary logrolling, side-payments, and deal-making should allow politicians to resolve or dissolve the accessibility problem. The fact that politicians, opinion-makers, and journalists routinely resort to scapegoating is indicative of this failure of ordinary political bargaining. It’s been nagging at me that even the most astute and impartial commentators couldn’t explain the ultimate source of the problem here. The accessibility problem is not like an intractable culture war (even if, as I suspect, the salience of a culture war my be a symptom of the intractability and intensity of the access problem).

A former PhD student, Vera Vrijmoeth (she now works at the Dutch Trade Union federation), pointed me to a better explanation. Vrijmoeth has been fascinated by the ways in which easy access to credit (or mortgages) can itself be a source of wealth inequality. In fact, as she points out the Dutch mortgage deduction (a tax-credit on mortgage interest) is usually defended by policy-makers because housing is a means to build up wealth or capital (see here [In Dutch]. The Dutch are not idiosyncratic in this sense. I return to Vrijmoeth.

Now, in recent decades we have gotten used to the idea of turning a home equity into an ATM or ‘equity extraction’ (even if that has stagnated). So, one can understand the attraction of such a policy to present home-owners (and even the general economy as the Greenspan Fed argued). But the general policy of increasing housing prices as a means to wealth predates the financial system’s ability to turn home equity into ATMs. It goes back to the core of the New Deal, and the founding of Federal National Mortgage Association or ‘Fannie Mae’ and the way it shaped and influenced the post WWII welfare states in most liberal democracies.

One of Vrijmoeth’s key insights is that a policy of ever increasing housing prices as a means to wealth increase itself generates a kind of wealth pyramid, where simultaneously entry from the bottom into the rising pyramid gets harder and harder. This is especially so when the increase in home prices outstrips productivity/wage growth as it does when supply of new homes is hindered and the prices of existing homes and land are supported indirectly through policy. I found this eye-opening because it also helps explain why the accessibility problem is so entrenched. Let me explain.

In nearly all liberal democracies, it is quite normal to treat “property” as “the ideal retirement asset for homeowners, with high house price growth helping downsizers release cash to fund their golden years.” (That’s from a Moneyweek article that is prompted by the idea that this may not last.) This is conventional wisdom in retirement planning and investment advising as any google search or (tenured) faculty party will reveal. Basically since WWII part of the implied social contract between governments and middle class citizens is that with rising prosperity, policy will allow homes to be a key means toward comfortable retirement. (Let’s call this the ‘retirement contract.’) All the policies that promote the retirement contract thereby reinforce the pyramid diagnosed by Vrijmoeth.*

In addition, the way the financial system is organized, makes middle class mortgages rather central to its health. Under the old (but still partially effective) Basel III rules, Banks were allowed to treat such mortgages as low risk and requiring very little capital buffer–this meant they were highly profitable (even if it made the banking system less resilient). To what degree Basel IV will really change this is an open question because the new rules may actually encourage more lending to borrowers deemed ‘safe.‘  Either way, the financial sector is a powerful ally of the retirement contract.

As an aside, Holland is rather unusual in one respect. It has long established and rather wealthy pension plans/schemes that cover most employees. (It’s by far the largest such system in the world per capita.) So, the Dutch can afford to speak in euphemism about the relationship between home equity and retirement.

The accessibility problem is irresolvable by ordinary political means like logrolling not just because middle-class home-owners are a formidable voting block everywhere. But primarily because there is no obvious alternative, replacement policy the government can propose to generate or create as (relatively) lush a retirement for this group as the status quo. In most countries maintaining existing public retirement schemes is already a challenge (one that closing borders to immigrants and refugees will only exacerbate). Mandatory saving for retirement is much less appealing than promoting home equity with its indirect social costs. For an ordinary politician it would be political suicide to tackle or even mention the retirement contract unless they locally represent an unusually youthful electorate.

The inability to reimagine and renegotiate the retirement contract is also why even very astute and generous commentators like Will Wilkinson, who correctly diagnose ‘NIMBY entitlement,’ don’t really get to the core of the problem. Do read his essay because it is forthright on the ways in which the status quo in American zoning practices expresses and reinforce white supremacy. (This is also true in other places, but not as well documented.) Even if it is true — let’s stipulate — that the origins and continued nature of the accessibility problem are racialist in character, diagnosing it in this fashion does not solve the ways in which the retirement contract blocks change. It’s not a winning political strategy to solve the accessibility problem.

So, on my reading of our moment in time, the accessibility problem is so entrenched that many voters are willing to give undemocratic hucksters a chance if they offer to solve it by whatever means necessary. (Recall above how scapegoating and the accessibility problem are linked in popular discussion.) I don’t mean to suggest the accessibility problem is the main source for so-called ‘democratic backsliding.’ I also don’t even mean to suggest that the voters of far right parties are primarily motivated by it.

However, on this last point it is worth investigating the following: we know that far right parties do well in aging, rural areas/regions that are ‘left behind,’ especially by young educated who have moved to the cities. We also know that these voters are often not the very poor, but the middle class there. In exploring this dynamic, social scientists have emphasized personality traits (including racist views), and educational attainment. But I wonder to what degree these are not people who are living in homes that won’t secure them the once expected, benefits of the retirement contract.++

The accessibility problem entrenches the sense of political malaise of democratic politics. Among ordinary citizens it undermines the resistance to hucksterism and gangsterism in political life, and it saps the sense of legitimacy that surrounds the politics of debate and dialogue. The fact that the rich and upper middle classes are capable of passing on their wealth means that the accessibility problem also generates a quite visible sense of unfairness about the system.** And so it is symptomatic for the crisis we’re in.

+I suspect this is also connected to declining birthrates. The economist, Robert J. Barbera, pointed out to me that China has an especially perverse version of the accessibility problem combining enormous urban vacancy with high entry prices in order to maintain the fruits (?) of the housing bubble (and prevent financial implosion of connected insiders).

*Vrijmoeth’s position seems to be that the pyramid effect she is interested in is an effect of asset markets more generally (a la Piketty we might say). But on my view this is only so when policy puts effective structural floors under markets.

+I thank Joshua Preiss and John Quiggin for helping me thing about this.

**I thank John Quiggin for emphasizing this point.



Mike Huben 02.13.24 at 12:11 pm

Wow, this is a really good insight that jibes with my personal experience and that of my family. It’s too bad that you don’t suggest ways out of this trap.
The only idea I have so far would be to legislate progressive disinvestment (or incentives fot disinvestment) in property such as houses and rentals. The idea would be increasing taxes or outright limits on residential or rental housing ownership for amounts greater than a reasonable retirement. Essentially another tax the rich scheme.
Does the stock/investment market produce a similar problem?


Eric Schliesser 02.13.24 at 12:57 pm

Thank you for your kind words, Mike. Despite the Greenspan-put there seems to be less of an implied contract that stocks are a safe investment. So, while it also generates governance problems (systemic risks, the role of the market in retirement schemes), these are not as intractable.


reason 02.13.24 at 2:40 pm

I think here is a good time to point out that people should read “Between Debt and the Devil” which points out that creating this mess was in fact a policy choice, specifically the choice to regard government deficits and money printing per se (and not just in excess) as the work of the devil and to rely instead on increasing private indebtedness as the way to finance an expanding economy. Of course this is hindsight, but how we get out of the mess, so long as a large portion of the population has benefited from the situation is politically difficult.

But we could adopt some policies to start to undo it. First off would be ending the bias in favour of tight fiscal polica and for loose monetary policy. Secondly we should change the tax system to progressively tax ownership of property, beyond people’s own residence. These are things we could do now which would gradually improve the situation.


steven t johnson 02.13.24 at 4:04 pm

There was not so long ago one of those cut-and-paste Naked Capitalism “articles” about a study finding that Trump voting in New Hampshire closely related to areas with declining housing price and lower economic growth. This stood out to me because I’ve thought it very probable that petty bourgeois economic anxiety over their declining property was the wind in Trumpery’s sails. (Trumpery here means the cryptofascist turn of the the owners and their employees, some of whom are in the Democratic Party by the way.) So yes, as I recall this supports the OP in a US context.

I would add that the retirement contract is not just about the comfort of the seniors but their failure to be able to keep a family, as the kids have to move away. Or worse, to be unable to help them get started in life, i.e., which really does mean, they get an education and they get a home. Living out your old age alone in a house that won’t even give any significant help your kids is in fact miserable, even if Lawyers Guns and Money trash prefer to condemn everyone in rural areas as racist scum. And of course, the role of property being sold to pay for elder care is an issue too. Contempt for the petty bourgeoisie as people is not particularly “left” in my opinion. It’s not like the haute bourgeoisie doesn’t share that contempt. There’s a reason liberal economists have wanted to abolish the mortgage interest deduction for all those decades.

Somehow the old American Dream that they would be “middle class,” affluent families doesn’t mean their kids won’t be saddled with student debt and unable to buy a house, was snatched away. The usual liberal answer, including the left liberal, is quit complaining, and it’s your fault, loser, is pretty much the neoliberal answer and the traditionalist answer too. The success of the cryptofascist “answers” is partly explained by the massive amounts of money put into publicizing them, though it is usual to ignore this. But part of it is that liberals, including left-liberals, don’t give an answer. Sure, the cryptofascists or “populists” if you will are playing a kind of shell game, where the marks delude themselves they are the “we” the hero will save from the enemies (mostly imaginary ones by the way.) The old joke is American workers are just temporarily embarrassed millionaires. But what was first a farce appears to be a tragedy coming in real life.


Oren Cheyette 02.13.24 at 4:26 pm

It’s interesting to see this diagnosis applied outside the US where the racial history and suburban white flight are a core part of the history of “how we got here”. Certainly, as Wilkinson points out, the racial history continue to matter in the US. But the diagnosis that housing-as-investment is the main driver of opposition to, e.g., new infill dense housing is already well understood in YIMBY circles. See for example this policy discussion by California YIMBY or this discussion in Vox.

California’s denser urban areas (e.g., Berkeley, where I live) mostly stopped allowing added density about 50 years ago, so while the state’s population roughly doubled from 1970 to 2010, Berkeley (and San Francisco) had essentially zero population growth over the period. For Berkeley that has changed in the last decade as a bare majority pro-housing alliance has begun to prevail in city governance. But San Francisco continues to contend with an alliance of old-school nimbys and nominally lefty non-profits to block most new development.

I don’t agree that the 30-year mortgage and low interest rates are the root of the problem. They facilitate home ownership, but so what? FNMA and FHLMC have been around since the New Deal. The housing crisis had its roots much later, in the ’70s, and the policy changes adopted then (open space requirements, height limits and the like) took further decades to show their damaging impacts.

The problem created by housing-as-investment is just one of several forces that all conspire to inhibit necessary development. (Others include racial resentment, faux-environmentalism, the power of construction trades to force costly requirements into housing legislation, and whatever the excuse-du-jour is for why wealthy people should get urban amenities without having to see their neighbors.) Enough of them need to be overcome simultaneously to make new housing happen.


TM 02.13.24 at 4:30 pm

The post focuses on “property” as “the ideal retirement asset for homeowners”. But an important piece is missing here: retirement funds. Huge amounts of money are saved in retirement funds, much of which is invested in real estate. All this money helps drive up property prices.

Here in Switzerland, there is a compulsory semiprivate pension system in addition to the public one. Most people have to save money into a private pension fund. The funds collectively manage far excess of a trillion francs. Oh if all that capital were put to actual productive use! The funds have to invest in safe assets, so a lot of that capitals goes into real estate, prices go through the roof, and many people pay excessive rent so that the private pension system remains afloat. Notabene if this money were directed into the public pension system instead, it would generate a far better payout to all but the most affluent pensioners but of course we can’t have that, that would be heresy. (Private pension funds currently yield all of 1.25% interest). (*)

As it happens, there’ll be a very interesting vote on March 2 precisely concerning the future of the retirement contract. There’s a ballot proposal to raise the public pension by all of 8%, not exactly revolutionary but enough for the financial industry and their political backers to pull out all the stops. The vote will show whether it’s possible to beat the neoliberal propaganda juggernaut for once. You’d think this is a nobrainer – who wouldn’t vote to raise their own pension? But if this passes (and it might, according to polls), it would be the first time in a long time that a social benefit was significantly expanded in this country.

Also on the ballot will be a proposal to raise the retirement age, which will certainly fail because even the Calvinists aren’t masochist enough to vote for that.

(*) A few technical details: the public pension system is highly downward redistributive since the contributions of high hearners are not capped, contrary to how it is in the US or Germany. The private pension system redistributes upwards because affluent earners can contribute quite high amounts taxfree. In addition, high earners can use pension fund money for a home purchase, which brings us back to the topic at hand.


TM 02.13.24 at 4:40 pm

I should add: the main economic difference between the public and private pension system, besides the economic inefficiency of the latter, is that the capital cover principle causes a huge savings glut which is economically counterproductive (even from the “capitalist” point of view), whereas a pay-as-you-go public pension system directly redistributes money from the working to the retiree population, creating demand instead of piling up savings. Strengthening public pensions and cutting back the private pension industry is in fact one of the most important political battles we should be fighting, for reasons of distributive fairness and – to save democracy.


Tm 02.13.24 at 4:51 pm

“we know that far right parties do well in aging, rural areas/regions that are ‘left behind,’ especially by young educated who have moved to the cities. We also know that these voters are often not the very poor, but the middle class there… But I wonder to what degree these are not people who are living in homes that won’t secure them the once expected, benefits of the retirement contract.”

Those rural, not-poor right wing voters are usually the ones who do own homes, contrary to many urban liberal midle class people who can’t afford homeownership even on a good income. Their homes are not appreciating as they would in the cities but living rent-free is a pretty good deal. And at least in Central Europe afaik home owners do not generally plan their retirement in this way, to sell their home and downsize.


MisterMr 02.13.24 at 6:24 pm

The problem of the increasing house value as a form of retirement is twofold:

First people expect not only to realize the gain but to leave something to the next generations, so there is a tendency to the accentration of wealth.

Second the way housing is used as, basically, the main middle class capital asset turns it into a natural Ponzi scheme (as was evident in 2008).

That said, there is also the problem that, as lower incomes diverge more and more from high income, the price for desirable housing, that depends on high income, automatically goes up faster than average income.
For this reason I’m very suspicious about the idea that high housing prices in cities are caused by restrictive regulation.

Finally, there is a very simple way to encourage homeownership: put a different tax on the house of residence than on the other houses owned by the same individual, with the tax on the other houses very high, wich kills the value of said houses as investiment. Here in Italy the law works like this and we have 74% ownership rate.
That said the countries with higest homeownership rates aren’t necessarily the ricest:


engels 02.13.24 at 8:09 pm

Finally, there is a very simple way to encourage homeownership: put a different tax on the house of residence than on the other houses owned by the same individual, with the tax on the other houses very high, wich kills the value of said houses as investment.

Who wants to encourage home ownership? I think that policy encourages people to live in a bigger house than they need/want and then cash out when they retire. Thanks to AirBNB they can also get little (or not so little) advances now and again.


Alex SL 02.13.24 at 9:49 pm

Regarding the question of why property prices are so high, inequality seems to be the obvious answer. There would be no problem if every family bought one house. There is a problem because many families have bought three. They consider themselves financial geniuses for having had a sufficient starting advantage over others to buy two investment properties, and the consequence is that they have each priced two other families out of the market.

(And then there are large companies that buy up thousands of houses, pricing thousands of families out of the market. But here around me, the people who own 2-5 houses are ubiquitous, even among colleagues and close family, whereas such large companies are not really present in public discourse except in what I read from the USA. Maybe they are good at staying out of the spotlight elsewhere, or maybe their role varies by country. Either way, their ability to buy that many homes is but another form of inequality.)

Regarding the question why politicians are incapable of solving the problem, perhaps take one step back and ask: what would motivate them to do that? Looking across the countries whose news I am following at least loosely, we have one side of the spectrum that has retired home owners and petty bourgeoisie as its political basis and therefore has no interest whatsoever in solving the issue but every motivation to scapegoat immigrants instead. They will hardly say, hey, dear wealthy voters with investment properties who reliably support us, you are the problem, we are now going to hurt your interests to help the young and poor who rarely show up to vote at all. And on the other side we have the social democratic parties who have shifted so far right on economics that their offering to voters has been reduced to doing the same as the conservatives but less corruptly and more competently. On the extremely rare occasions that they have a leader who proposes even so much as cosmetic efforts to reduce inequality, they get treated as dangerous radical by the billionaire-owned media. Because you actually need 50% to win an election in most countries, that campaign scares just enough low-information voters off that they lose the election, ushering in another centre-right leader of the nominally left-wing party who knows how to play it cautiously enough to win an election or two with the promise of competence. That becomes the only winning strategy for social democrats, and they increasingly stick to it.

To reduce inequality and make housing broadly affordable again, we would need a strong movement dedicated to reducing inequality and making housing affordable. On economics, the left is practically dead in contemporary politics. Privatisation, deregulation, and everybody for themselves are completely entrenched as TINA. The corporate media are happy to ensure that that stays so, and not enough voters are pushing back against that. Even those who diagnose the problem correctly either delude themselves into thinking that the social democrats are still more left-wing than they actually are, or they resign themselves into hopelessness (me!). And that’s it. Maybe more people will wake up as inequality gets ever worse, but that Trotskyist trope has not worked out well in the past, so more likely our society is simply in its late stage, blaming immigrants and pronouns instead of fixing real, structural issues, and growing inequality will increasingly hollow out the social contract until everything spirals down the drain when faced with a crisis on the level of climate-caused food shortages.


Garrett Wollman 02.14.24 at 2:01 am


For local governments land is directly and indirectly a major source of revenue (and among the few they control directly).

California, which has a disproportionate influence on Anglosphere discussions of real estate, is a place in which this is not the case, “thanks” to Proposition 13: property valuations are fixed at the price of last sale, so the only way to collect revenue is through local sales taxes (requires a supermajority vote) or through increasingly onerous “impact fees” on the few development projects that are allowed after the 1970s downzonings. This is a direct cause of much of the California housing crisis. In other states that were subject to the same 1970s “tax revolt”, like Massachusetts where I live, local budgets are stuck in a straitjacket that limits revenue increases to less than the rate of inflation, unless a majority of the voters (~= property owners; renters have much lower propensity to vote) enact an “override”.


Matt 02.14.24 at 10:40 am

Before looking for the answers to problems, it’s always best to be sure that there is a problem, or at least to have a good idea of what the problem is. In this case, it’s not 100% clear, at least, that “young” people today are worse off than “boomers” were. For some discussion, see here:

There is a problem right now of high interest rates. That makes it hard for people looking to buy a home right now. (I know!) We can hope they will come down. And, maybe the whole thing is a mess. But I’m pretty sure that people had to live with roommates in “popular urban environments” for longer than they thought was ideal or they hope for pretty much forever (exceptions coming in odd cases, or when there were very serious problems w/ cities that we should not hope for), but otherwise it looks like younger people are doing about as well in the past, or sometimes a bit better.


TM 02.14.24 at 11:11 am

Germany and Switzerland indeed have unusually low home ownership rates (, below 50% compared to 60-75% in France, Netherlands and Italy. This is despite the fact that homeownership is generously promoted by tax incentives, and is mostly due to the fact that people in cities mostly live in multi-unit dwellings which are usually rented. The idea that universal homeownership, usually pictured as single family home in the country, is desirable, seems a bit unrealistic.


Alex SL 02.14.24 at 12:30 pm


I do not doubt that problems existed for previous generations, but some of that is just not true, and some of the statistics and arguments on the blog you linked are … odd.

First, it would be interesting to see a home ownership at age 30-39 statistic for 1950-2022. Home ownership at age 20 is of no relevance, not least given how many people study in their twenties and would be foolish to buy a home when they don’t even know what state or province they will find their first job in and have no significant income yet. Another aspect to consider would be the decreasing size of plots. Newly built homes here in Australia tend towards having “gardens” of three square meters of tan bark. My parents in densely populated Germany had hundreds of square meters of grass and fruit trees, a swimming pool and a sandpit for their children.

Second, it cannot be denied that labour rights have eroded, that the gig economy has taken root, and that my generation overall does not have the kind of virtually guaranteed career path in one area of business, maybe even one company, that my parents’ generation would have been able to expect. Closely related, I have seen stats for countries like Germany showing that the percentage of national income that goes to working people (employees) increased until ca. 1982 and then decreased. Inequality is getting worse, and more and more of national wealth is sucked up by those who own capital, to a degree that my parents did not have to experience when they were building their relative wealth as employees.

Third, student debt is not a worldwide issue, of course, but predominantly one of the USA and UK, and to a lesser degree others like Australia, so this one is hard to generalise. (For example, I understand German conservatives dabbled with them but that they were abolished again.) But it is bizarre to see the blog going, “if we exclude the most expensive degrees and all doctorates, student debt isn’t actually much, and also, not everybody gets a university degree”. Yes, obviously. If I exclude all cities above 10,000 inhabitants, Australia has a very affordable housing market! That is some very amusing reasoning.


TM 02.14.24 at 1:45 pm

Alex: here’s another “things are not as bad as we think” statistic:
The German low wage sector, which inflated in the oughts to almost a quarter of workers (and which probably includes many of the gig workers you mention), has recently shrunk to 15%, its lowest level in more than 20 years (

I’m careful with generalized comparisons and especially those that have a smell of golden age nostalgia (which is almost never justified). There are probably things that are more difficult for the young generation than they used to be. But I also remember times when high unemployment was considered an immutable fact of life and now we have labor shortages.


reason 02.14.24 at 2:03 pm

Steven T. Johnson @4
“There’s a reason liberal economists have wanted to abolish the mortgage interest deduction for all those decades.”
Yes, and it is because it is counterproductive. It rewards the rich for buying bigger places, helps poorer people less and ends up just increasing the price of houses. It doesn’t make housing more affordable at all, just the opposite.


reason 02.14.24 at 2:13 pm

Alex SL @15,
I found your post interesting because I have moved in the other direction (from Australia to Germany).
I have seen the housing price explosion in Australia from afar. All my siblings are now millionaires – simply because they bought houses when they were relatively cheap. The price of houses in Sydney (as it is in London) is simply ridiculous. I have always thought that the big advantage that Germany has is that it is relatively decentralised. And has a large historical infrastructure investment so that a large part of the population (including me) live in moderately sized towns and small cities. Building at the margins of these cities and towns gives a large available surface area for expansion. (Sydney, surrounded on three sides by National Parks and on one side by the Ocean, in contrast, is very limited in this respect.)

I’m a believer that there should be more infrastructure investment to enable there to be more compact good places to live. Not bigger cities but more well-connected cities. And a universal basic income would also help. Some people would decide to move where they can afford to live rather than to move where they can find a job. Eventually the jobs would follow the population as redistribution will also then be regional redistribution.


Oren Cheyette 02.14.24 at 3:14 pm

Matt @13 – Having lived in the same community in California (a different part than Kevin Drum whose blog you cite) I’ve seen the changes in cost & living condition here since my student days. There is simply no comparison – as a student I lived a block from campus for the current equivalent of about $600/mo in a 2br apartment with one other person. Students now cannot live anywhere in the region for that price. At double the price they can get a much crappier room in a unit with more roommates a couple of miles from the university. The state has substantially increased in population and the student demand has grown apace. But the city blocked construction of new multi-unit construction for 40 years.

The same story has played out in other high demand areas – Boulder Colorado being a salient recent example, where the local grandees only just last year allowed more unrelated people to occupy a single dwelling, while continuing to block new multi-unit housing. The council only just repealed a growth restriction whose purpose was to “provide for a rate of growth in the city that will assure the preservation of its unique environment and its high quality of life”. Over & over, wealthy homeowners in desirable areas say “I’ve got mine, eff you.” Except in places like Berkeley or Boulder they find a way to dress it up in environmental sanctimony.

This is slightly off-topic relative to the OP, but illustrates that there isn’t just one answer to the causes of the housing crisis. Sometimes it’s just financial considerations. But often there are other drivers.


steven t johnson 02.14.24 at 4:14 pm

reason@17 ” It rewards the rich for buying bigger places, helps poorer people less and ends up just increasing the price of houses. It doesn’t make housing more affordable at all, just the opposite.”

The notion the problem is the rich buying big houses rather than buying rental properties they won’t maintain but still raise rents on, strikes me as questionable. There is an implication that making somebody buy smaller places is an unquestionable good but, if meant, that strikes me as itself questionable too. Homes are family goods, not really capital. Reserve space is not necessarily an intolerable inefficiency, like big coffee breaks.

As to the claim mortgage interest deduction helps poorer people less, I’m afraid I suspect a variation on the shady argument against free tuition, where a smaller amount of money for some lower-income families that makes it possible is unacceptable because some higher-income family gets a larger sum.

The means testing principle, shocking as it may seem, is not sacred. In means-testing, the whole point is always to limit the expenditure and such programs are never sufficient. The closest exception I know of was the Paycheck Protection Program which gave money to the employers rather than the employees.

Lastly the notion that mortgage interest deduction is the main driver in raising housing prices strikes me as highly questionable indeed. It’s like claiming everybody is overtaxed, when the real problem is most people are underpaid. Not only do the owners have a potential interest in rising real estate value, but all banks always have a vested interest rating the face value of their asset highly. They can loan more money, i.e., make more profits, when they have reserves that meet the legal standard.

It’s not like the banks are going to pay taxes on any rise in real estate values due to economic growth. Taxing the income of mortgage holders doesn’t seem to me to address this problem in any way at all, just raise more revenue. But if that is the purpose?

Just as in the thread on free college, the loose use of terms like affluent and middle-class tends to vitiate meaning, I think. The notion useless eaters like old people in rural areas are living large because they’re living rent-free is I think promoting lots of people into a mythical middle-class while ignoring banks and REITs and land development corporations and the genuinely “middle-class” people who’ve plowed their business profits into real estate holdings and making real money is misleading. There is no single middle-class, there are layers and layers even if you use superficial income criteria. There is no social pyramid, it’s more like a radio tower.

But I suppose I might be wrong and the rise of reverse-mortgages really are a sign of a parasitic caste?


Sebastian H 02.14.24 at 6:24 pm

I think it was D-squared who pointed out that the challenge of retirement with aging populations is that no matter where you put the money, you want more out of it then you are currently putting in. So the precise contours of the investment don’t matter as much as the fact that the compound ‘reinvesting’ that you normally want to rely on has trouble as the population ages. So then you have to rely on technological innovation, the fruits of which also can’t fully be reinvested. This seems like a particular case of that general problem.


nastywoman 02.14.24 at 6:28 pm

“accessibility problem”
was solved in 2009 –
(at least in the US) – as in 2010 anybody in the US could buy a house (or apartment) for 30 – 40 or even 50 percent less than in 200. AND for the very lucky ones, who moved to Las Vegas there were even ‘deals’ for 60 to 70 percent less than three years before. And so the members of a small internet blog called The Housing Bubble Blog
all met in Las Vegas (otherwise called ‘Ground Zero of The Bubbles Bust) and to celebrate that they –
like real –
had seen it ALL coming – waaaay before most US Economists and Scientists.
AND German TV was there – in order to record each one of thems philosophical thoughts –
NOT about the downfall of capitalism BUT of good ole American -(and German) values where a house still was ‘a house’ –
or better said ‘a shelter’ and
NOT some kind of speculators ‘instrument’ in order to get rich – and furious!
AND so – at that moment! – on a Sunday!! – in Las Vegas!!! the“accessibility problem” was solved for once and for ALL!

BUT THEN something really… really… scary? happened – everybody who quickly picked up one of ‘these bargains’ -(including the Führer of this blog called ‘Jones’) noticed that the bargains they had picked up began to become less and less of bargains and after a view years gambling with real estate became the MAJOR GAME again -(not only in Las Vegas) but now also in Germany – and everybody who was anybody got into REAL ESTATE (or knew somebody in Real Estate) and ‘houseflipping’ became the utmost popular sport of them all – AND again – the AMERIKANISCHE VISIONÄRE warned the World about the imminent collapse in such a dramatic way – that the Führer of the blog (called ‘Jones’) got the nickname ‘Perma Bear’ and this time the bubble just wouldn’t BUST!

And that made (nearly all) of the members of this blog so made that they more and more wrote against some kind of WEF Verschwörung and some old German called Schwab AND against what they called: ‘Globalist Scum’-
and with handles like ‘Debt is Slavery’ or ‘Deplorable’ they now loved to post: ‘you will own nothing’ and their new Meta-Führer became a Real Estate Scammer from Florida and they even thought he was still their President.

AND when the German Director – who had filmed them in 2010 – asked them the question: What happened? – they got really mad and told him it’s ALL the communists (and Obama and Biden) fault.

And that’s why the “accessibility problem” NEVER will be solved!



nastywoman 02.14.24 at 7:00 pm

OR –
as a very famous friend of US (and owner of a lot of real estate) once said:

The “accessibility problem” will be solved (again) if the whole damn ‘sink’ collapses
(again) but this time NOT for just a few years and this time NOT with the idea –
that it is (again) just a temporary slump and Real Estate ALWAYS only goes UP and UP!


reason 02.14.24 at 7:54 pm

Stephen t Johnson@20,
I never said I didn’t want to help lower income people, just that the mortgage interest deduction is a bad way to go about it. Income tax deductions are always regressive. Give direct subsidies (fixed amount) instead.


engels 02.14.24 at 8:07 pm

Btw I know it’s not the central problem by any means it really wouldn’t hurt to shut down AirBNB.


steven t johnson 02.14.24 at 9:44 pm

reason@24 Agree…and any impression I thought the mortgage interest deduction was sound policy, especially in helping house people of any income, was stupid writing on my part. Partly it’s overreacting to the apparent desire of so many, to explain how not giving benefits is really left wing, partly it’s irritation that so many people want to find their oppression in taxes, not in low pay/underemployment/unemployment etc.

But to be honest I’m thinking if the, uh, committed right wins a trifecta, the resolution of the debt crisis will include a national VAT and all these discussions will seem like arguments over the best decals Amelia Earhart should have put on the wings of her plane.


hix 02.14.24 at 11:31 pm

In the small German suburb I’m living, people usually die in their big homes, even after they are reduced from five people to one. So they do not in any practical sense rely on the significant value of their real estate for their livelihood beyond saving rent.

That does not stop them from feeling great and superior about the richness, or do anything to avoid proper zoning laws that would allow multifamily homes and new construction in general, especially not at the most logical spots. Even most of the farmers (mostly hobby farmers these days if they are still active in that sector, usually next to a regular job, losing money by any proper calculation on the farming activities capital value and minimum wage), as all of them already are multi-millionaires and own a couple of rental houses, are not that interest in new construction any more. Partly because they cannot capture quite as much of the gains these days from rezoning and maybe hope for better days when they just get all the profits again, but mostly just because they hate change along with all the other old people based on the principle that any change is bad. I think many just genuinely do not understand basic finance either, neither in technical nor in emotional terms. Watching your empty lot with a construction permit for decades just feels safe and great, having a huge part of your assets tied in the gigantic home you live in without any annoying renters when you can touch it just feels safe – no matter how much that does not make any sense if you do a risk adjusted return calculation. Favourable rezoning also tends to correlate with the owner being the major or a core part of his village council alliance, or a relative to a much larger extent than to the location being the one most favourable for new development. Emotional stupidity seems to go a long way along with genuine standard of living/ asset value gains to explain inappropriate construction patterns if you ask me. Don’t know how a village council is supposed to resolve the issue by horse-trading with other topics when there is no other issue anyone cares about.


Alex SL 02.15.24 at 8:03 am

The key point of the post is home ownership. Granted, when discussing the affordability of home ownership and the general malaise of building wealth and being able to retire comfortably, broader issues of inequality and insecurity come into play. Nevertheless, these kinds of discussions are frequently confounded by the conflation of different issues.

For example, when discussing growing inequality and job insecurity, somebody will often pipe in and point out that the economically more egalitarian 1950s-60s were more racist, sexist and homophobic, or maybe point to advances in medical technology since then as evidence that we have it better today, that there is ever only progress upwards. But in a discussion of economic (!) inequality, those are red herrings unless an argument can be made that, say, gay marriage is only politically achievable by first increasing economic inequality, which seems kind of difficult to imagine. What would the mechanism of action be?

Similarly, in this thread about housing affordability any supposed advantages my generation may or may not have over my parents’ are kind of a red herring unless they make housing more affordable. Key points to consider are the ratio between median income and median house price, the ratio between median income and median mortgage size, the ratio between median income and median mortgage payments as partly determined by interest rate regimes, and the ratio between median income and fairly fixed outgoings while saving for a down payment, i.e., the sum of rent, food, clothing, basic communications electronics, service fees, student debt payments, and maintaining a car. In contrast, the absolute dollar value of the median income, even inflation-adjusted in comparison with a previous generation, is fairly irrelevant in isolation.


That is nice to know, and I really hope that the power balance will shift more towards labour. But labour shortages since Covid are not, or not yet at least, at the generation-shaping, multi-decadal time scale I thought we were discussing in this thread. The kind of stuff that seems salient to me was how in the 1950s-1970s, scientists found it easy to get indefinite appointments as researchers or lecturers right out of their PhDs, whereas my cohort struggled to stay in science at all, faced with a combination of mostly term jobs being available and restrictions on how long you can have term jobs (e.g., in some countries only five years after your PhD, whereupon you are unemployable). Something has clearly changed there over the decades.


engels 02.16.24 at 12:36 pm

Just gonna leave this here

Abolition of Private Real Estate

1. The right to own a tract of land … within a city is abolished without exception.
2. The right to own buildings located in cities with a population of ten thousand or over and having… a value… in excess of the amount fixed by local authorities is abolished.

Note 5. All city buildings and plots on which property rights have been abolished in accordance with this decree shall be turned over to the local authorities.
Note 6. The right to erect new buildings in cities with a population of ten thousand or over belongs exclusively to the local authorities…
Note 9. All mortgages of ten thousand rubles or over on confiscated lands and buildings are annulled…
Note 10. Former owners of real estate must pay rentals on the same terms as other tenants…

Ia. Sverdlov, Chairman of the Central Executive Committee

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