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August 28, 2023 | How the Aristocracy Ate the Housing Market

John Rubino is a former Wall Street financial analyst and author or co-author of five books, including The Money Bubble: What To Do Before It Pops and Clean Money: Picking Winners in the Green-Tech Boom. He founded the popular financial website DollarCollapse.com in 2004 and sold it in 2022.

The Kobeissi Letter just posted some nightmarish housing stats:

BREAKING: Median cost to buy a house hits a new record of $2,748/mo, up a MASSIVE 90% since 2020.

In other words, buying a house today costs nearly $33,000 per year.

This is 46% of the median PRE-TAX household income in the US. Post-tax, homebuyers in the US are spending nearly 70% of their income on home payments.

Meanwhile, the median monthly apartment rent just hit a fresh record of $1,859/mo.

Kobeissi ends by asking, “How has it become so difficult to have a place to live?”

Here’s the short answer:

Follow the money

Today’s housing mess is neither unique nor accidental. ALL public policy — monetary, trade, geopolitical, health — over the past few decades has been aimed at enriching a handful of elites at the expense of everyone else while making the victims dependent on government programs and therefore easier to control. The housing part works this way:

Stage a leveraged buyout

Respond to every crisis with lower interest rates and generally easy money. This raises the value of financial assets like stocks, bonds, and real estate, most of which are owned by the already rich. An emerging aristocracy leverages their growing paper wealth to buy up even more financial assets, which causes recurring financial crises, to which governments respond with ever cheaper money, and so on.

Along the way, the rich accumulate multiple houses for themselves while private equity groups buy up entire neighborhoods and convert those houses to rentals.

Eventually, even starter houses are priced beyond the reach of those left behind. And formerly middle-class Americans — especially young families — are so demoralized that articles like the following can run without sparking riots:

When 10 Homes Isn’t Enough: Which Billionaires Own The Most Properties

Take a peek into the sprawling real estate portfolios of America’s richest people.

Amazon chairman Jeff Bezos picked up his ninth home this summer–on Indian Creek, a luxury island sometimes called Miami’s ‘billionaire bunker’ given the number of billionaires with homes there; his neighbors now include financier Carl Icahn, car dealer tycoon Norman Braman and Jared and Ivanka Trump. Bezos’ three-bedroom manse spans 9,200 square feet and reportedly cost him $68 million. The purchase rounds out a portfolio of homes he owns in spots from Washington, D.C. to Manhattan to Maui, the devastated Hawaiian island to which he and his fiancee Lauren Sanchez recently announced a $100 million donation.

Bezos is the latest high profile billionaire to buy in Miami but hedge fund manager Ken Griffin holds the record for most ever paid in the city, dropping $107 million on a two-mansion, four-acre waterfront estate in Biscayne Bay in September 2022. He already owned several properties next door, plus homes in London, a record-high-priced penthouse in New York and $450 million worth of properties in Palm Beach. Altogether Griffin, who moved from Chicago to Florida in 2022, has splashed out nearly $2 billion on 13 homes

Bezos and Griffin are part of an elite group of ultra wealthy Americans who’ve been snapping up properties around the country and the world, building sprawling collections that reach into the double-digits. But neither one of them has bragging rights as the billionaire with the most homes. That title appears to belong to Oracle cofounder Larry Ellison, who owns an estimated two dozen homes, including three in Newport, Rhode Island; four in Woodside, California; and six in Malibu (where he also has a restaurant and spa). That doesn’t even include the $300 million he spent to buy nearly all of one of Hawaii’s main islands.

Forbes found at least five billionaires with 10 or more homes and plenty of others who own at least half a dozen. So why would anyone want that many residences? “Property is a wonderful indicator of status,” says Ranjeet Guptara, a senior vice president in the wealth management arm at UBS. Adds John Ennis, CEO of London-based real estate agency Chestertons, “They are in a ‘want’ world rather than ‘need.’ They can pay for whatever they want.”

Malibu broker Shen Schulz calls these billionaires “apex predator buyers,” referring to their ability to purchase whatever they want without restrictions. A difference post-pandemic is the types of properties these apex buyers seek. Mountains, rivers, forests, lakes, beaches, ocean views: these are now key amenities for billionaires who are buying homes at record prices in places like Malibu, Hawaii, Telluride, Aspen, Santa Barbara, the Hamptons and Lake Tahoe. Billionaires also collect homes for their families and entourages, including pilots, chefs, personal trainers and nannies. And they snap up the next door neighbor’s property to make their holdings more private and secure and give themselves space for all sorts of toys, from foil boards to off-road vehicles.

In July, mortgage firm billionaire and Phoenix Suns owner Mat Ishbia announced plans to tear down his current home in the Detroit suburb of Bloomfield Hills–and knock down four neighboring homes he’d purchased–to build an amusement-style compound. While he dropped his initial plans for a go kart track, Ishbia is set to have a trampoline park, an enchanted forest, climbing walls, batting cages and a lazy river. His brother, private equity billionaire Justin Ishbia, is doing something similar in the Chicago suburb of Winnetka, transforming four neighboring homes into a megamansion on Lake Michigan.

Billionaire Jeff Greene, who owns seven homes (including two for his siblings), puts it this way: “Those with limited means might purchase a new dress or a new car, but the wealthy can afford to purchase real estate.” Plus, Greene tells Forbes, it’s generally “a good investment and something people can actually use and enjoy.”

Given the tendency to buy up and merge multiple properties as well as the fact that many high-end homeowners use limited liability companies and trusts to own property, it can be difficult to track just how many houses a billionaire has. Forbes uncovered six different LLCs that appear to belong to Oprah Winfrey, through which she owns some 2,000 acres of property and an undetermined number of homes in Hawaii. Jeff Bezos bought four apartments in one Manhattan building and five in another; we counted those as two homes after learning that some units had been combined. Meanwhile, Mark Zuckerberg has a five-property compound in Palo Alto; 30 parcels of land in Hawaii—including part of a former sugar plantation—that’s been turned into an 1,500-acre estate; and two side-by-side homes in Lake Tahoe. Depending on how one counts these, Zuck has anywhere from three to nine residences.

But what’s a number when you’ve finally designed your very own billionaire dream house?

Here are some of the most prominent U.S. tycoons with at least half a dozen homes. Click here for the rest of the article

Tighten the screws

When massively easy money finally leads to rising wages for the 90%, declare inflation to be an existential threat and raise interest rates aggressively. The rich can afford to take the resulting hit since they’ll still be rich even if stock prices plunge in the eventual recession. But workers who fear unemployment will be so traumatized that they’ll stop demanding raises. And since they have to live somewhere, they’ll pay whatever rents their private equity landlords demand.

The result: a populace softened up for pretty much any environmental, public health, or censorship rules the aristocracy wants to impose.

Unless…

It’s pretty late in the game for an electoral fix, which should be obvious to anyone watching the 2024 presidential circus (though RFK and Vivek are definitely making it interesting).

But (barring a nuclear war) it’s still possible to avoid the worst of what’s coming and protect our friends and families. Which is the point of this newsletter.

So let’s end with a (sort of) optimistic scenario:

The coming financial crisis spins out of even the Fed’s control, making a return to sound money the aristocracy’s least bad option. People who trusted fiat currencies are impoverished but the stackers and preppers who left the fiat system in time — while staying healthy and building resilient communities — end up with the capital to protect their families and start rebuilding.

In the new sound-money world, cheap credit is scarce, making financial scams like the above harder to pull off and rewarding thrift and saving. The middle class starts to recover, World War III is averted, and housing goes back to being affordable.

The road from here to there won’t be smooth, but it’s the only one worth traveling.

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August 28th, 2023

Posted In: John Rubino Substack

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