On today’s show we are talking about the long term implications of the home affordability crisis. Ownership of real estate is expensive and the cost is rising faster than incomes are increasing.
Back in the late 1970’s when had the last major bout of inflation, there was a massive erosion of household purchasing power. Single income households were common back then. But as prices increased, it became necessary for many households to rely upon two incomes. It used to be the case that the average person who worked in a trade or a factory or a school teacher could afford to buy a detached single family home.
A lot has been written about the erosion of the middle class.
That begs the obvious question. If an investor can build that townhouse and rent it to a tenant who can afford the rent, why is that same home out of reach for the tenant to buy?
The answer is simple. A commercial portfolio borrower will be able to afford the equity to build rental properties, whereas many individual borrowers lack the means or the discipline to save the funds for a downpayment. That gap on the equity side means the demand for purpose built rentals will continue to grow.
Host: Victor Menasce