Is the Middle Class Becoming the Upper Lower Class?

Post-WII Levittown construction under the GI Bill

Post-WII Levittown construction under the GI Bill

 Once, the American Dream

Joe Biden is in a heap of trouble. He may be the last hope for American democracy, but aside from his severe age weakness, his defining era is now plagued with issues that he cannot do very much about. “It’s the economy, stupid!” resonates loud and clear. Even our foreign policy choices are riddled with domestic economic issues. But the Tyrannosaurus Rex in the room is the continuing, never-ending income and wealth inequality explosion. And income inequality has been one of the few Republican kitchen-table platforms. In a bad way. The continuous quest for deregulation, lower taxes (which really benefits the rich) and cutting the benefits include in the federal budget that benefit middle- and lower-class Americans the most is political deflection at its best (worst?). As Americans watch prices soar, the news is rife with the battle of the billionaires, who have never had it so good. Except at death and sale, we simply do not tax most wealth.

Tuition has increased at an average of triple the rate of inflation for the last four decades. Food costs have escalated as land has been lost to desertification (preceding by extended periods of drought) or conflict that has made farming untenable. Oil and gas prices have risen and fallen (on average, really risen) under the avaricious control of OPEC+. Anything that bears or reflects interest has felt the pinch of the Federal Reserve’s trebling of effective interest rates, impacting consumer debt (particularly credit cards), student loans and, most of all, mortgage rates.

None of these matters can reasonably be controlled by the President. The Federal Reserve, a very independent body, sets interest rates, and in their effort to contain inflation, they have made homeownership out of reach for most Americans, kicked residential rental costs through the roof and thus have heavily contributed to our massive homeless population. Even if the United States were able to double its already-huge output of oil and gas, in order to keep their own oil and gas output at a solid price, the OPEC+ nations would simply reduce their output to counter such an American effort. The only American winners would thus be oil and gas companies, and unless Texas and Oklahoma fossil fuel extractors are willing to sell their wares at a huge discount below what they could generate as an export (don’t hold your breath), oil and gas would remain pricey. And even the President can’t bring parched desertified land back into production or settle all the global conflicts that make farming impossible. But the President will always be blamed for it all.

With so many people escaping big urban areas, like New York, Southern California and San Francisco, those venues have sent residents fleeing to lower real estate cost markets, mostly red states from Idaho to Texas and Florida, which is beginning to make those former bargain property prices er… well… very expensive. In fact, housing hasn’t been generally affordable for most first-time American buyers for decades. And those with capital have pushed most players out of the marketplace. According to a Johns Hopkins report this past August, “Despite the strong recovery in home prices after the Great Recession, the number of builders has declined 65 percent since 2007, right around the time the financial crisis started.”

Remote working, the demise of office space values in some of the biggest cities, and explosive property-owners’ insurance rates have played particular hob in California, especially in the Southland. Writing for the November 23rd Los Angeles Times, Andrew Khouri, tells us: “In October, the average home price for the six-county region climbed 0.12% to $831,080, according to data from Zillow. It was the eighth consecutive monthly increase, leaving prices just 1% below the all-time high reached in 2022.

“‘I don’t understand how people are affording these insane mortgages,’ said Nicholas Uribe, a 31-year-old property manager who is trying — so far unsuccessfully — to buy a single-family home in the San Fernando Valley [a Los Angeles City suburb]… Although prices are slightly lower than during the peak, a home is drastically more unaffordable. In October, the monthly payment on the typical L.A. County home was $4,830, according to Zillow. In June 2022, when prices peaked and rates were lower, the typical payment was nearly $900 less.

“Some experts say they don’t expect prices or mortgage rates to drop considerably in the near future — a forecast that, if realized, could dash the hopes of people like Uribe… In theory, he should be better off than he is. In 2019, he paid $329,000 for a Sylmar townhome that his agent now estimates is worth about $500,000…

“During the height of the pandemic, people rushed to purchase a home, motivated by stay-at-home policies and mortgage rates driven to record lows by the Federal Reserve’s easy money policies. That demand surge collided with a shortage of homes for sale and caused prices to skyrocket.

But as inflation soared, the Federal Reserve reversed course, tightening policy in a switch that helped send mortgage rates sharply upward. From November 2021 to November 2022, rates climbed from below 3% to 7% [and more!]. Initially, prices in Southern California fell as shocked buyers backed away and inventory swelled. Then the flow of homes hitting the market ground to a near-halt.” Low inventory – people not willing to sell and have to deal with high mortgages to move up – hurt homebuyers big time. Prices started rising again.

To make matters worse, commercial real estate lenders are raising the income and downpayment criteria. Only 11% of those in Southern California can afford to buy a home. With mortgage rates between 7% - 8%, and absurdly high insurance rates, Southern California reflects a national crisis. And when folks cannot afford to buy a home, they have to rent. Which explains the sky-high rental market, pushing people out of their homes and into the streets. There’s no evidence of a major decline in pricing for housing that matters. And because we will not really tax wealth, the rich get vastly richer… and the deficit soars. Instead, you have an entire political party that prefers to cut benefits for most of us in order to keep taxes low for the richest of the rich.

I’m Peter Dekom, and until reducing income/wealth inequality becomes a focus – including taxing major wealth – more and more Americans will be unhappy, finding someone to blame that is irrelevant to the problem, with growing levels of unaffordability in this country.