Financial Literacy

Inheritance, Not Work, Has Become the Main Route to Middle-Class Home Ownership

The cost of housing is rising so much faster than wages that buyers increasingly rely on family wealth.

In many of the world’s largest and most expensive cities, young people find themselves in a strange predicament. Although their educational credentials and employment prospects put them in the “middle-class” category, many have virtually no chance of ever making it on to the property ladder.

For almost four decades, property priceshave increased at a much faster rate than wages. Although this trend has hardly gone unnoticed, what has received less recognition is how it has fundamentally reshaped both class and inequality in western societies.

Societies have long been used to thinking about class in terms of employment, with the job you do and the amount you earn reflecting what class bracket you belong to. This idea is firmly rooted in a worldview that emerged during the middle of the 20th century. But today it’s property ownership, not employment, that shapes somebody’s life chances.

Until the early 20th century, waged labour was largely thought a mark of social marginalisationThose who had to work in order to earn their way in the world, rather than live off the wealth of their assets, were often considered second-class citizens.The distinctive achievement of Keynesian policies in the postwar period was transforming wage labour into a card for membership of the middle class.

This shift was especially clear when it came to “professional” jobs, but social mobility also extended to “working-class” jobs that guaranteed lifelong employment and steady wage increases. The possibility that getting a waged job would allow you to buy into the property market was central to this vision of an expanding middle class, especially in the US and UK, where the spread of property ownership was concrete evidence that ordinary people could acquire a stake in the social order.

This model worked on the basis of steady annual wage rises. But during the 1970s, growing union power and high wages began to threaten corporate profits. The industrial standoff that ensued resulted in high levels of consumer price inflation. This posed a direct threat to asset values and triggered broader economic turbulence –conditions that proved fertile for a rightwing offensive against organised labour, led by Ronald Reagan and Margaret Thatcher.

This rightwing political vision centred not just on crushing organised labour, but on democratising capital so that all citizens could enjoy the benefits of asset ownership. It was in the area of housing that the idea of democratised capitalism found more lasting traction, in part because it could build on the Keynesian legacy. Key to this vision was the liberalisation of financial markets and the growing availability of mortgage credit.

If this served to push up property prices much faster than before, for a time most eyes were precisely on the democratic nature of the wealth effect – how capital gains allowed ordinary people to financially benefit from property ownership. But property inflation benefits the already propertied, and works to exclude aspiring middle-class households from the housing market. In many OECD countries, homeownership rates show a particular pattern over the period 1980 to 2020 – an upward trend followed by a downward trend.

In this way, property inflation over time eroded the distinctive achievement of the Keynesian era: the possibility of buying a home on the basis of a wage alone. In many large cities, it is now virtually impossible to break into the property market if you earn an average, or even above-average, salary. In a city such as Sydney, where house prices have approximately doubled over the past decade, the idea that setting aside an amount of money each month could allow you to save your way to homeownership appears not just futile, but ridiculous.

In the wake of these shifts, a new hierarchy of property-based classes has emerged. At the top of this hierarchy are those who own property: first, a small group of investors who generate income from diversified property portfolios; second, a substantial layer of people who no longer have any mortgage debt on their own home and own several investment properties, some outright and others through a mortgage; and third, those who have large mortgages on their homes, and who may experience significant financial stress, but are nonetheless able to build up wealth over time. At the bottom of this hierarchy are those who don’t own assets: renters, including well-paid professionals who are paying off the mortgages of their landlords, and homeless people.

At a time when many ordinary homes appreciate by more each year than what the average employee can expect to earn, employment by itself is less and less able to serve as a route to middle-class status. In that sense, we are seeing a return to the days when wage-labour was a condition of social marginality, condemning people to a life of day-to-day survival and excluding them from building up a stake in society.

The millennial generation is the first to experience this reality with full force. Members of that generation may have played by all the rules, yet by their late twenties still find themselves without any real prospect of achieving a middle-class existence. But of course, it makes little sense to frame the problem in terms of “baby boomers v millennials”, because property gets passed on from one generation to the next. For millennials from a wealthy family, all of these problems are likely to melt away.

There is no generational solidarity in the term “millennials”. On the contrary, the fault lines that are now becoming highly visible – between millennials who stand to inherit assets and those who don’t – have been produced by four decades of property inflation. Inheritance is becoming an increasingly important determinant of life chances. Over time, access to middle-class s

Status will become more and more closely bound up with what you stand to inherit, not what job you do.

The Guardian

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