In
the
game
of
housing
crisis
Rochambeau,
we
play
with
income,
inventory,
and
policy.
Inventory
cannot
beat
inadequate
incomes,
but
better
compensation
policies
can.

The
labor
market
has
reached
peak
disengagement
rates,
partially
driven
by

historic

strikes,

resignations,

non-participation,
and

silent
quitting.
By
splitting
the
workforce
into
five
income
groups
to
view
homeownership
rates,
we
lay
bare
a
cause
for
retreat
from
an
increasingly
unfair
labor
market
–
a
system
with
four
times
more
losers
than
winners
and
the
Top
1%
jettisoned
well
beyond
the
reach
of
parity.
As
the
architects
of
individual
purchasing
power
(incomes),
corporations
must
be
a
part
of
the
solution
to
create
affordable,
long-lasting
homeownership
for
everyone.

GRAPH
1:
The
distribution
of
real
estate
across
the
different
income
segments
as
a
percent
of
the
total
real
estate
market
in
Q3
1989
and
Q4
2023.
Data
Sources:


Board
of
Governors
of
the
Federal
Reserve
System

What
got
us
here

In
the
late
1980s,
someone
at
The
Federal
Reserve
Board
got
curious
about
income-real
estate
relationships
and
started
collecting
data
(Graph
1).
For
the
past
three
decades,
we
watched
the
Top
1%
of
incomes
increase
their
share
of
American
property
in
the
U.S.
by
more
than
60%
at
the
expense
of
middle
and
lower-income
segments.
Today

• The
  richest
  1%
  own
  more
  than
  one
  in
  every
  10
  properties,
  despite
  representing
  only
  one
  in
  100
  Americans.
• The
  poorest
  20%
  own
  only
  5%
  of
  real
  estate,
  despite
  a
  significant
  46%
  increase
  from
  public
  interventions.
• Those
  not
  living
  at
  either
  extreme
  suffered
  debilitating
  losses,
  with
  segments
  at
  risk
  of
  poverty
  hurt
  the
  most,
  losing
  almost
  a
  quarter
  of
  their
  share.

These
dynamics
played
out
where
the
Top
20%
of
incomes
now
hold
more
than
one
in
every
two
properties,
reducing
the
remaining
80%
of
Americans
to
blood
sport
over
the
balance.
Drawing
on
these
trends
as
guides,
it
becomes
evident
that
new
inventory
would
be
impotent
in
the
crisis,
slipping
into
the
same
unyielding
snare
of
income
inequality.

Driving
prices
up

The
striking
difference
in
ownership
highlights
a
winner-take-all
system.
If
several
families
are
interested
in
one
house,
the
richest
family
will
outbid
the
others,
increasing
the
home’s

value
to
reflect
their
untouchable
income.
The
untouchable
value
becomes
the
epicenter
of
a
ripple
effect
that
also
causes
neighboring
home
prices
to
increase.

The
gain
in
all
property
values,
thus,
mirrors
the
income
growth
rate
of
the
wealthiest
families.
If
other
families’
salaries
do
not
grow
at
the
same
rate,
the
rising
property
values
will
outpace
their
wages,
creating
a
gap
between
families
and
nearby
homes.
The
hole
gets
filled
by
institutional
and
wealthier
buyers
who
rent
the
houses
to
losing
families,
or
more
affluent
families
will
purchase
the
property
to
expand
their
home
size.
The
gap
does
not
result
from
wage
inequality
but
rather
from
wage

growth
inequality. 

GRAPH
2:
The
growth
rates
of
home
prices,
income
segments
(including
CEO
pay
of
the
top
350
firms),
and
economic
productivity
measures
(S&P
500
and
US
GDP). 
Data
Sources:
Adjusted
for
inflation.
Economic
Policy
Institute


1

and


2, 


Multpl,


The
Federal
Reserve
Economic
Data,


U.S.
Census
Bureau,


GoBankingRates.
CEO
Pay
uses
null
values
for
years
where
data
does
not
exist.

Executive
pay
scales
feed
income
growth
imbalances,
but
not
because
of
cash
salaries.
Nearly
all
major
corporation
CEOs,
key
executives
and
boards
get
paid
primarily
in
company
stock
–
a
dynamic,
take-home
slice
of
the
S&P
500,
whose
growth
frequently
outperforms
even
the
U.S.
GDP
(Graph
2).
Regular
employees
receive
their
pay
as
fixed
cash
with
fixed
raises,
and

less
than
a
quarter
choose
to
exercise
stock
options.
When
they
do,
it
is
usually
a
tiny
amount,

taxed
as
income,
with
no
variety
in
how
to
exercise
them.

In
2010,
less
than
half
of

eligible
Netflix
employees
opted
for
stock
as
part
of
their
compensation,

taking
a
mere
5-7%
of
their
earnings
as
stock.
Employers
grant

key
executives
and

boards
over
60%
of
their
compensation
in
stock,
with
CEOs
taking
the
highest
rate
at
about

80%.
Netflix
stock
appreciated

37x
in
ten
years;
median
salaries
grew

1.2x. 

By
2024,
in
addition
to
owning
more
than
double
their
share
of
all
real
estate,
the
Top
20%
of
incomes
held

87%
of
all
corporate
equities
and
mutual
funds.
The
Top
1%
took
almost
half
of
that,
owning
a
whopping
38%
of
the
whole
market.
Possessing
almost
the
entire
corporate
equities
market,
rather
than
a
small
stake
as
a
regular
employee
or
retail
investor,
is
the
difference
between
owning
a
bank
and
owning
a
savings
account.
That
difference
in
buying
power
flaunts
itself
in
the

housing
market
–
leading
to
untouchable

prices.

The
housing-compensation
loop
whirls
into
a
circus
of
disparities
that
hit
superstar
cities
where
companies
like
Netflix
flourish.
Superstars
are
metros
piled
high
with
people
who
generate
ideas
and
make
remarkable
contributions
to
the
country’s
GDP,
like
San
Jose
and
New
York
City.
More
than
half
of
superstar
residents
are
housing-burdened,
meaning
housing
eats
at
least
30%
of
their
income
(1,

2,

3,

4,

5,
and

6).
Equity
management
firm
Carta
found
that
most
employees
do
not
exercise
stock

because
of
cost
and
financial
risk.
So,
in
a
supremely
ironic
twist,
the
company’s
stock
is
useless
to
ordinary
employees
because
of
the
very
housing
crisis
compensation
practices
created
in
the
first
place.
The
long-term
logic
of
stock
cannot
beat
the
immediate
crisis
of
rising
housing
costs
and
stagnant
wages
emptying
American
bank
accounts.
Offering
stock
options
under
these
conditions
is
as
offensive
as
nobility
suggesting
cake
in
a
famine. 

A
government
solution 

Without
employer
participation
and
accountability,
the
government
has
taken
on
the
full
onus
of
fixing
the
housing
crisis.
But
it
lacks
the
resources
to
tame
this
behemoth,
presenting
Americans
with

affordable
housing
solutions
that
are
well-intentioned
but
unsustainable
or
undesirable.

For
example,
the
California
Dream
for
All
program
provides

first-time
homebuyers
with
their
entire
downpayment

in
exchange
for
a
percentage
of
passive
ownership
in
the
home.
These
“shared
equity”
agreements
are
an
attractive
proposition
to
first-time
homebuyers
unable
to
save
under
the
burden
of
high
rents,
high
student
debt,
and
stalled
wages.
Unsurprisingly,
California’s
initial
tranche
of
capital
was

committed
before
the
program
even
started.

The
Federal
Housing
Finance
Agency
recently
launched
its
first
round
of
shared
equity
programs
through
Fannie
Mae
and
Freddie
Mac.
But
they
cap
how
much
an
investor-lender
can
benefit
from
increasing
home
value.
The
government
simply
cannot
deliver
on
the
high
need
or
delicate
balances,
and
behind
closed
doors,
many
officials
are
frustrated
with
employers’
unrelenting
role
in
the
crisis.
Ultimately,
employees
cannot
participate
in
remunerative
capitalist
risks,
like
buying
stock
options,
until
employers
clean
up
their
part
of
the
housing
crisis.

A
way
forward 

Overhauling
Employee-Assisted
Housing
Programs
(EAHPs)
is
the
easiest
remedy.
In
these
programs,
employers
provide
cash
to
employees
for
down
payments
and
closing
costs.
But
today’s
EAHPs
treat
these
benefits
as
employee
income
–
payroll
expenditures,
which
are
essentially
company
losses.
This
results
in
a
relatively
small
benefit
for
the
employee
that
gets
taxed
as
income,
and
a
few
thousand
bucks
pale
when
a
starter
home
costs
anywhere
from
$500,000
to

$1.4
million.
Since
EAHPs
are
expenses,
employers
are
disincentivized
to
provide
anything
more
to
meet
surging
home
prices. 

Now
that
governments
have
opened
shared
equity
pathways
to
down
payments,
they
have
cleared
the
way
for
finance
startups
to
get
employers
around
the
payroll
pitfall.
Shared
equity
transforms
the
expenses
into
investments,
so
EAHPs
become
assets,
not
losses.

HomeFree,
a
national
housing
non-profit
whose
founders
recently
received
the
prestigious

Joseph
Wharton
Award
from
The
Wharton
School,
has
drawn
plans
with
Baltimore
employers
to
pilot
these
startups
and
volley
housing
outcomes
of
participating
companies’
employees.
Their
focus
is
to
rehabilitate
and
repopulate
Baltimore
neighborhoods
gutted
by
centuries
of
systemic
racism
and
then
destroyed
and
abandoned
by
the
2008
financial
crisis.

The
underlying
framework
of
American
property
laws
is
feudalism
–
hierarchies,
stagnating
mobility,
debts,
and
landlords,
all
observing
real
estate
as
the
ultimate
power.
Today’s
income
and
property
distributions
echo
in
that
pit.
Although
employer
shared
equity
is
relatively
new,
it
gives
housing
a
way
forward
not
seen
since
mortgages
evolved
a
century
ago.
It
is
a
strong
opening
move,
foreshadowing
policy
changes
that
could
deliver
the
winning
Rochambeau
play
the
housing
market
needs.

This
column
does
not
necessarily
reflect
the
opinion
of
HousingWire’s
editorial
department
and
its
owners.

To
contact
the
editor
responsible
for
this
piece:



[email protected]

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