A recent article in the San Diego Daily Transcript by economist Alan Nevin, discusses the rising inequality in our nation. Alan says “….The inequality is being exacerbated by the marriage of college-educated people to other college educated people. The incomes of the educated rise rather rapidly as they move up the job scale and together, they provide the disposable income that creates the Beemer economy. They can afford the nice cars, nice housing, travel, upscale clothing and can raise their children in the manner that will inevitably lead to those children’s high level education.
At the other end of the scale, we have the folks who most often made it out of high school, but whose learning capacity is dulled by making the mistake of being born to the wrong parents and by the mediocre education they have received. If these young adults cannot meld their education with today’s increasing technology driven jobs, they are destined to be at the bottom of the economy indefinitely. And when they marry, they inevitably marry at the same socio-economic level, thereby ensuring a lifetime of struggle.
According to a recent Harvard/Berkeley report, 70% of people born into the bottom quintile of income distribution never make it into the middle class. And less than 10% make it into the top quintile. The study notes that social mobility has been low for at least thirty or forty years.
Therefore, the spread between the educated and undereducated continues to widen.
Unfortunately, the jobs that once provided the undereducated with decent incomes have long disappeared. Those jobs were very often in manufacturing and assembly. Typically, those jobs were in union-dominated industries. The union pressure for high wages and benefits eventually caused the “good” jobs to move off-shore or move to right-to-work states where the education system, and particularly, the junior colleges, cater to the needs of the technology driven employers. Clearly, the U.S. automobile industry now has a southern accent…..”
Other studies indicate that Millennials, typically 1st time buyers, are showing less interest in buying houses and cars. Many prefer to live and work in urban areas and can actually get by without a car. Add to that the psychological impact of the great recession, maybe a huge student loan to pay off, and the freedom of location spawned by technology, you can envision legions of well-educated urban gypsies. Many can work from any location with good cell and internet coverage.
So what is a real estate investor or lender to do? Given that urban gypsies won’t be living in tents, they still need lodging, and those on the other end of the scale need housing as well. Urban apartments, condo’s and upper scale furnished rentals all look like a good bet. At the lower end of the scale, individual homes are slated to become long term rentals, and it appears that there is a need for larger apartment (as in square feet per unit) communities designed to house families for the long term.
This is all good for the Beemer’s in the short run, but it is not good for our society in the long run to have the middle class eliminated and it certainly appears that is what’s happening.