The Covid pandemic has brought to light the growing rift between the rich and the poor
When it comes to real estate, the gap is widening. Wealth inequality is growing. And it’s not a new phenomenon, either. The gap between the rich and the poor has been widening for decades, and real estate is no exception.
As The New York Times describes it: “The rich are getting richer, but it is happening across the board, across all types of real estate. And as a result, the gap between the haves and have-nots is growing.”
What this means to you as a buyer or seller of real estate: if you are looking to buy or sell a property in 2022 with high prices in US cities – make sure you research that property with care because the demand for luxury residences will only increase relentlessly over time.
And when you go overseas – do some research because many places in international markets have high demand for luxury properties too.
The rich are getting richer
Luxury real estate is a different beast.
The rich are getting richer.
But the poor are getting poorer.
It wasn’t always this way.
In the early 1900s, the average person had $1,000 to live on. The rich were still poor, but they were many times richer than today’s rich.
Based on data from the Federal Reserve Bank of St. Louis, about 95% of Americans lived in suburbs or cities and only 10% lived in rural areas, indicating that many people didn’t live off farms and ranches as much as they do today. In houses which were similar to those our grandparents lived in, each person had an income that was roughly equal to what they made in their entire lives combined, meaning that almost everyone lived off a single income that they saved each month and shared with their family. It was believed that if you worked hard and saved money you would be able to get ahead and eventually become wealthy enough to buy land outside of your city or suburb where you could raise a family who would eventually be able to afford luxury real estate like those of today’s super rich. And when it came to home ownership, most people thought that people who grew up with luxury real estate paid more for their homes than those who grew up in rural areas because they had more money per square foot than folks living on farms or ranches did and could afford luxury homes in more expensive neighborhoods like Manhattan or New York City than those living on small farms where land is affordable only by working for them for years until they can pay a mortgage on their home (whereas most people who don’t own land cannot).
All of this changed when the Great Depression hit America in the 1930s and was followed by World War II during the 1940s and 1950s (and then again during the Vietnam War era during the 1960s). Many Americans lost jobs and went bankrupt while others worked long hours just trying to keep food on their table; it wasn’t uncommon for many families to lose up to 5 members of their immediate household at one point because nobody was able to pay rent any longer because there weren’t enough jobs out there anymore thanks to new factories being built all across America making things like steel products, automobiles, computers etc…
This is particularly evident in the US real estate market, where the sales of luxury homes are booming
For example, the rising prices in luxury real estate are a sign of a growing gap between rich and poor in the United States. The affluent spend more money on luxury real estate each year than the bottom 90 percent of households combined.
And how does this happen? In case of US real estate, it’s not hard to figure it out: it’s because rich people own property, and they have bought them at a discount. And then they do whatever they want with them. They renovate them. They turn them into castles…
The phenomenon is not confined to the US, however; it is happening all over the world
Luxury real estate is a growing phenomenon all over the world. Here are some interesting tidbits on this topic:
1. Luxury real estate is the fastest-growing segment of the real estate market, with an annual growth rate of 6.4% (i.e., $88 billion dollars) from 2010 to 2015, reported iPropertyMarket, a research firm based in London;
2. Luxury homes were responsible for 22% of the total sales volume in the US in 2020 and will continue to drive demand for luxury real estate throughout 2021 and 2022;
3. Production costs for luxury homes can range from a minimum of $250,000 to $1 million per unit (i.e., 6-flat), according to iPropertyMarket;
4. Sales volumes of luxury homes reached $216 billion in 2020 and are expected to reach $218 billion by 2022;
5. According to some US analyses, the price of luxury housing has increased by almost 55% since 2008, while average prices have increased by 45%. Average Manhattan rents have increased in line with average house prices, which suggests that competition among buyers is driving up prices; and
What is behind this trend?
Luxury real estate has been a subject of global interest for several years now. The increasing trend of luxury real estate will not be stopped anytime soon. Real estate prices in the US have been increasing at a slower pace but with the recent surge in luxury real estate sales, we might see an increase in wealth inequality and lower standards of living in the country.
Wealthy people are seen as having incredible lifestyles, which makes it easy for them to spend money on houses like this one:
It is no secret that luxury real estate is becoming increasingly rare. The rich are even richer and only those who have money can afford to buy these homes. But are these houses really worth more than they are worth?
The fact that a luxury mall opened in Dubai three years ago has made it likely that more people will become wealthy soon enough. We’ve already seen UBS raise its target price on Swiss Re by 7% due to strong demand for wealth management products from the Middle East market .
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