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How Does Growing Inequality Affect the Housing Market?

by Peter Thomas Ricci

Economic inequality is surging just about everywhere; how could that impact the local housing market?

Income inequality has become a major news item in recent months, and for good reason – by almost every economic measure, inequality has increased nationwide, with some startling variations in different metro areas. For a better idea on how inequality has grown in our specific metro area, see our chart below, which utilizes new data from Trulia.

You might be wondering, though, why we’re focusing on this topic. After all, on the surface, inequality and housing appear to be in two separate areas of the economy.

As with all economic matters, though, income inequality is intertwined in how the housing market works, and Jed Kolko, Trulia’s chief economist, explained it best with this observation: “[E]xpensive housing pushes out many low- and middle-income households, and, in turn, richer residents bid up home prices and rents. At the same time, to compensate for high housing costs, many expensive big cities have policies or programs – like rent control or inclusionary zoning – that preserve or build some housing for lower-income residents (though, ironically, such policies could reduce overall housing affordability if they discourage new housing supply).”

So whether we like it or not, income inequality plays an outsized role in shaping our housing market, and agents would be good to track how its economic forces are impacting their business.

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