The consequences of giving up<\/p>\n
Lee and Yoo are high school friends who grew up in South Korea and whose research focused on the economic consequences of unattainable home ownership.<\/p>\n
Using a database that has tracked the transactions of more than 500,000 Americans since 2014, they examined what happened when home prices rose in a given county. In communities where such spikes occurred, they discovered that renters within the top income quintile (who earned more than US$7500 ($12,846) a month on average, pulled back on credit card spending, especially on luxuries and non-necessities. This suggests they were trying to save more for a home purchase, the researchers said.<\/p>\n
But renters in the lowest income quintile (generally those earning less than US$3000 a month) did the opposite: they upped credit card spending, by 3% on average, the paper said.<\/p>\n
In a time of relatively high inflation, there are many possible explanations for shifting spending patterns, and not every researcher embraces this analysis. Stefanie DeLuca, a sociologist at Johns Hopkins University, said those findings oversimplify consumers\u2019 priorities. <\/p>\n
\u201cIf you\u2019re not saving and deferring to buy a house, you\u2019re spending it on other kinds of enrichment activities for your kids, supporting folks in your family who are going through a tough time \u2013 we just don\u2019t know what this is about, and I\u2019m not sure it\u2019s a good or bad thing,\u201d DeLuca said. \u201cThere may be other rationales and perfectly, to them, optimal framing about how they\u2019re spending this money.\u201d<\/p>\n
For example, a spike in home prices during the pandemic dovetailed with relatively high mortgage rates, putting home ownership out of reach for many Americans. Inflation also soared in other parts of the economy, peaking in mid-2022, raising the cost of groceries, electricity, rent and healthcare.<\/p>\n
But the report identified other behavioural differences apart from spending between those who own property and those in the \u201cgiving up\u201d category. The home owners surveyed were consistent across income levels on whether they should try their hardest at work, with 97% saying yes to some extent and 3% declaring effort to be \u201cnot important\u201d.<\/p>\n
Renters were much more likely to discount work effort when their net worth fell below US$300,000 \u2013 the threshold above which people generally believe a home is within reach, the paper says. Nearly 6% just below that benchmark discounted the importance of hard work. Those above it, on the other hand, leaned into it at higher rates than home owners, with only 2% saying effort didn\u2019t matter.<\/p>\n
Net worth is the difference between a person\u2019s assets (car, home, investments, cash, etc) and what they owe (mortgage, credit card and other debt). US households headed by people younger than 35 had a median net worth of US$39,000 in 2022, Federal Reserve data show. Among those 35 to 44, it\u2019s US$135,600.<\/p>\n
Lee and Yoo say the disparity suggests that renters who think they will eventually be able to afford a home \u2013 the US median stands at US$410,800, though prices are far higher in many major metro areas \u2013 are more motivated at work and committed to saving than those who\u2019ve given up on the idea.<\/p>\n
The researchers also wanted to know who invests in assets like crypto, which is known for its volatility. But with high risk comes high reward: Bitcoin, for example, was roughly US$126,000 in October. Now it\u2019s hovering near US$89,000.<\/p>\n
Their findings suggested that renters who feel homeownership is out of reach are the most likely to embrace cryptocurrency, which has been heavily promoted in recent years by President Donald Trump, Larry David and many others.<\/p>\n
Homeowners appear more likely to buy crypto as their wealth grows. At the high end, just over 6% of rich homeowners own crypto. Among renters, the US$300,000-and-above crowd are about as likely to buy crypto as home owners, suggesting they\u2019re less interested in riskier bets as they save for a home. But those in the US$200,000 to US$300,000 range are the most likely crypto buyers, with nearly 10% investing.<\/p>\n
A targeted housing subsidy<\/p>\n
Lee and Yoo\u2019s paper proposes that the US Government consider grants for people who are close to \u201cgiving up\u201d, arguing that it could help put them on the path to homeownership.<\/p>\n
\u201cThis one-time small help can make them more disciplined and more hard-working their entire life, eventually becoming a homeowner,\u201d Yoo said in an interview.<\/p>\n
Down Payment Resource chief executive Rob Chrane, whose company helps connect prospective home buyers with aid programmes, said the economists\u2019 suggestion sounds a lot like the low- or no-interest loans that cities and states already offer to qualified first-time buyers. <\/p>\n
\u201cThere\u2019s plenty of money: 2600 programmes\u201d across the country, Chrane said. \u201cI don\u2019t think we need more programmes. I think we need a better job of communicating the programmes.\u201d<\/p>\n
But Lee and Yoo said they envisioned such a subsidy going to 20-year-olds; that\u2019s more than a decade younger than the typical first-time home buyer. At that age, it would take a small amount of money to bridge the gap between people who are on track for homeownership and those who are not.<\/p>\n
The subsidy would ideally go to 20-year-olds whose net worth is about zero, they said, since those already in debt would just pay for immediate needs rather than saving for home ownership, while those who have assets at 20 are already doing well.<\/p>\n
That\u2019s better than existing programmes, in Yoo\u2019s view, because people might give up long before they can access such programmes: \u201cIf you give them a down payment subsidy, you\u2019re basically saying I\u2019m going to lower your hurdle, after you accumulate wealth for 10 or 20 years.\u201d<\/p>\n
But Moody\u2019s economist Cristian deRitis said giving 20-year-olds housing grants doesn\u2019t address the fact that there are simply too few houses available. <\/p>\n
\u201cBy our calculation, we need to add 2 million housing units to the economy. \u2026 There aren\u2019t enough houses for you to become a homeowner,\u201d deRitis said.<\/p>\n
\u201cSure, if you can help someone over the hurdle of homeownership with a subsidy, that\u2019s useful, but \u2026 you have a bigger pool of potential buyers and they\u2019re bidding with each other,\u201d he added.<\/p>\n
In other words: subsidies might just drive housing costs up further.<\/p>\n
Stijn Van Nieuwerburgh, a professor of real estate and finance at Columbia Business School, was intrigued by the students\u2019 work, saying it echoes earlier findings about the value of homeownership. <\/p>\n
\u201cThe renters could have done just as well, if only they had invested that money in a 60-40 stock-bond portfolio. But they didn\u2019t,\u201d he said. \u201cYou could be a renter and you could be investing your money wisely \u2026 It\u2019s just that that seems very hard for people.\u201d<\/p>\n
At 29 and 30, Yoo and Lee are just a bit younger than the 1990-born group that was the focus of their paper. One is a home owner, and one is a renter.<\/p>\n
But Lee, the renter, said their research is more about mindset, not just whether someone owns a house. <\/p>\n
\u201cWe think if households perceive home ownership as less achievable, they consume more, [and] because of this behaviour, the wealth inequality has been widened. Even with very small differences in wealth initially, that can lead to great differences in wealth later in people\u2019s lives,\u201d he said.<\/p>\n
For himself, he hasn\u2019t given up yet.<\/p>\n
Sign up to Herald Premium Editor\u2019s Picks<\/a>, delivered straight to your inbox every Friday. Editor-in-Chief Murray Kirkness picks the week\u2019s best features, interviews and investigations. Sign up for Herald Premium here<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"The consequences of giving up Lee and Yoo are high school friends who grew up in South Korea…\n","protected":false},"author":2,"featured_media":199628,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5],"tags":[11157,27709,6433,95,1975,5195,12859,138,14229,9217,219,1345,221,51928,1446,5829,7810,15219,111,139,69,3169,45644,384,19328,1518,92494,312,1361,102,4576,40866,4741],"class_list":["post-199627","post","type-post","status-publish","format-standard","has-post-thumbnail","category-business","tag-abandoning","tag-adults","tag-affordability","tag-and","tag-at","tag-be","tag-behave","tag-business","tag-changing","tag-choices","tag-economy","tag-home","tag-how","tag-increasingly","tag-making","tag-many","tag-may","tag-mostly","tag-new-zealand","tag-newzealand","tag-nz","tag-ownership","tag-paper","tag-people","tag-reach","tag-research","tag-reshaping","tag-says","tag-that","tag-with","tag-work","tag-worse","tag-young"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/199627","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/comments?post=199627"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/199627\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media\/199628"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media?parent=199627"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/categories?post=199627"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/tags?post=199627"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}