As the co-founder of PayPal and the first outside investor in Facebook, Peter Thiel is widely known for his expertise in the world of technology. But lately, the billionaire venture capitalist has been sounding the alarm in an entirely different sector: real estate.
During a recent interview with The Free Press, Thiel drew on the insights of 19th-century economist Henry George to emphasize the severity of America’s housing crisis.
“The main obsession of the Georgians was real estate, and if you weren’t very careful, you got big prices, and the people who owned the real estate got all the gains in society,” Thiel said.
The crux of the problem, he explained, lies in the “extremely inelastic” nature of real estate, especially in regions with strict zoning laws.
“The dynamic ends up being that you add 10% to the population in a city, and maybe house prices go up 50%, and maybe people’s wages go up, but they don’t go up 50%,” he said. “So GDP is going up, but that’s a huge windfall for home owners on the rise and for landlords, but also a huge hit for the lower middle class and young people who can never get their own home.”
Thiel warned that this “Georgian real estate disaster” is happening in many “Anglosphere countries”, including the US, Britain and Canada.
An incredible transfer of wealth
The rise in real estate prices in the US is nothing short of alarming. Over the past five years, the S&P CoreLogic Case-Shiller, America’s national NSA home price index, has climbed over 50%.
This sharp rise in real estate prices creates significant challenges for potential buyers, but renters are not immune to the negative impact either. It’s all part of a broader cost-of-living crisis affecting more and more Americans.
Thiel broke it down, saying, “There’s a way you can talk about inflation in terms of the price of eggs or groceries, but it’s not that big of a cost item, even for people in the lower middle class. A really big expense item is the rent of the home, the rent.”
At its core, Thiel argues, the issue boils down to supply and demand.
“If you just add more people to that mix, and you’re not allowed to build new homes because of zoning laws, where it’s too expensive, where it’s too regulated and restricted, then prices are going to go up a lot,” he said. “And it’s this incredible transfer of wealth from the young and the lower middle class to the upper middle class and the landlords and the elderly.”
Til is not the only one raising the alarm. Federal Reserve Chairman Jerome Powell previously expressed similar concerns, Investor me reports.
“The real problem with housing is that we’ve had, and we’re on track to continue to have, insufficient housing… It’s hard to find — to zone lots that are in places where people want to live… Where are we going to get the offer?” Powell said at a news conference in September.
The gap in the real estate market is significant. A June Zillow analysis estimated the U.S. housing shortage to be 4.5 million units by 2022.
