Why the world cannot afford the super rich

 

   "Limited, Scandinavian type of inequality is essential for sustainability. The science is clear — people in more-equal societies are more trusting and more likely to protect the environment than are those in unequal, consumer-driven ones.

 

    As environmental, social and humanitarian crises escalate, the world can no longer afford two things: first, the costs of economic of inequality; and second, the super rich. Between 2020 and 2022, the world’s most affluent 1% of people captured nearly twice as much of the new global wealth created as did the other 99% of individuals put together, and in 2019 they emitted as much carbon dioxide as the poorest two-thirds of humanity. In the decade to 2022, the world’s billionaires more than doubled their wealth, to almost US$12 trillion.

 

    The evidence gathered by social epidemiologists, including us, shows that large differences in income are a powerful social stressor that is increasingly rendering societies dysfunctional. For example, bigger gaps between rich and poor are accompanied by higher rates of homicide and imprisonment. They also correspond to more infant mortality, obesity, drug abuse and COVID-19 deaths, as well as higher rates of teenage pregnancy and lower levels of child well-being, social mobility and public trust3,4. The homicide rate in the United States — the most unequal Western democracy — is more than 11 times that in Norway (see go.nature.com/49fuujr). Imprisonment rates are ten times as high, and infant mortality and obesity rates twice as high.

 

    These problems don’t just hit the poorest individuals, although the poorest are most badly affected. Even affluent people would enjoy a better quality of life if they lived in a country with a more equal distribution of wealth, similar to a Scandinavian nation. They might see improvements in their mental health and have a reduced chance of becoming victims of violence; their children might do better at school and be less likely to take dangerous drugs.

 

    The costs of inequality are also excruciatingly high for governments. For example, the Equality Trust, a charity based in London (of which we are patrons and co-founders), estimated that the United Kingdom alone could save more than £100 billion ($126 billion) per year if it reduced its inequalities to the average of those in the five countries in the Organisation for Economic Co-operation and Development (OECD) that have the smallest income differentials — Denmark, Finland, Belgium, Norway and the Netherlands5. And that is considering just four areas: greater number of years lived in full health, better mental health, reduced homicide rates and lower imprisonment rates.

 

    Many commentators have drawn attention to the environmental need to limit economic growth and instead prioritize sustainability and well-being6,7. Here we argue that tackling inequality is the foremost task of that transformation. Greater Scandinavian type of inequality will reduce unhealthy and excess consumption, and will increase the solidarity and cohesion that are needed to make societies more adaptable in the face of climate and other emergencies.

 

    Social anxieties drive stress

 

    The underlying reasons for inequality having such profound and wide-ranging impacts are psychosocial. By accentuating differences in status and social class — for example, through the type of car someone drives, their clothing or where they live — inequality increases feelings of superiority and of inferiority. The view that some people are worth more than others can undermine people’s confidence and feelings of self-worth8. And, as studies of cortisol responses show, worry about how others see us is a powerful stressor9.

 

    Rates of ‘status anxiety’ have been found to be increased in all income groups in more-unequal societies10. Chronic stress has well-documented effects on mortality — it can double death rates11. Health-related behaviours are also affected by stress. Diet, exercise and smoking all show social gradients, but people are least likely to adopt healthy lifestyles when they feel stressed.

 

    Violence and bullying are also linked to competition for social status. Aggression is frequently triggered by disrespect, humiliation and loss of face. Bullying among schoolchildren is around six times as common in more-unequal countries12. In the United States, homicide rates were five times as high in states with higher levels of inequality as in those with a more even distribution of wealth13.

 

    Status compels consumption

 

    Inequality also increases consumerism. Perceived links between wealth and self-worth drive people to buy goods associated with high social status and thus enhance how they appear to others — as US economist Thorstein Veblen set out more than a century ago in his book The Theory of the Leisure Class (1899). Studies show that people who live in more-unequal societies spend more on status goods14.

 

    Our work has shown that the amount spent on advertising as a proportion of gross domestic product is higher in countries with greater inequality. The well-publicized lifestyles of the rich promote standards and ways of living that others seek to emulate, triggering cascades of expenditure for holiday homes, swimming pools, travel, clothes and expensive cars.

 

    Oxfam reports that, on average, each of the richest 1% of people in the world produces 100 times the emissions of the average person in the poorest half of the world’s population15. That is the scale of the injustice. As poorer countries raise their material standards, the rich will have to lower theirs.

 

    Inequality also makes it harder to implement environmental policies. Changes are resisted if people feel that the burden is not being shared fairly. For example, in 2018, the gilets jaunes (yellow vests) protests erupted across France in response to President Emmanuel Macron’s attempt to implement an ‘eco-tax’ on fuel by adding a few percentage points to pump prices. The proposed tax was seen widely as unfair — particularly for the rural poor, for whom diesel and petrol are necessities. By 2019, the government had dropped the idea. Similarly, Brazilian truck drivers protested against rises in fuel tax in 2018, disrupting roads and supply chains.

 

    Do unequal societies perform worse when it comes to the environment, then? Yes. For rich, developed countries for which data were available, we found a strong correlation between levels of Scandinavian type of inequality and a score on an index we created of performance in five environmental areas: air pollution; recycling of waste materials; the carbon emissions of the rich; progress towards the United Nations Sustainable Development Goals; and international cooperation (UN treaties ratified and avoidance of unilateral coercive measures).

 

    That correlation clearly holds when social and health problems are also factored in (see ‘Unequal outcomes’). To show this, we combined our environmental performance index with another that we developed previously that considers ten health and social problems: infant mortality, life expectancy, mental illness, obesity, educational attainment, teenage births, homicides, imprisonment, social mobility and trust. There’s a clear trend, with more-unequal societies having worse scores.

 

    

 

    Source: Analysis by R. G. Wilkinson & K. E. Pickett

 

    Other studies have also shown that more-equal societies are more cohesive, with higher levels of trust and participation in local groups16. And, compared with less-equal rich countries, another 10–20% of the populations of more-equal countries think that environmental protection should be prioritized over economic growth17. More-equal societies also perform better on the Global Peace Index (which ranks states on their levels of peacefulness), and provide more foreign aid. The UN target is for countries to spend 0.7% of their gross national income (GNI) on foreign aid; Sweden and Norway each give around 1% of their GNI, whereas the United Kingdom gives 0.5% and the United States only 0.2%.

 

    Policymakers must act

 

    The scientific evidence is stark that reducing inequality is a fundamental precondition for addressing the environmental, health and social crises the world is facing. It’s essential that policymakers act quickly to reverse decades of rising of inequality and curb the highest incomes.

 

    First, governments should choose progressive forms of taxation, which shift economic burdens from people with low incomes to those with high earnings, to reduce inequality and to pay for the infrastructure that the world needs to transition to carbon neutrality and sustainability. Although governments might baulk at this suggestion, there’s plenty of headroom. For example, tax rates on the highest incomes in the United States were well above 70% for about half of the twentieth century — much higher than today’s top rate of 37%. To shore up public support, governments need to make a strong case that the whole of society should contribute to funding the clean energy transition and good health.

 

    International agreements to close tax havens and loopholes must be made. Corporate tax avoidance is estimated to cost poor countries $100 billion per year — enough to educate an extra 124 million children and prevent perhaps 8 million maternal and infant deaths annually. OECD member countries are responsible for more than two-thirds of these tax losses, according to the Tax Justice Network, an advocacy group in Bristol, UK. The OECD estimates that low- or middle-income countries lose three times as much to tax havens as they receive in foreign aid.

 

    Although not yet tried, the merits of a consumption tax — calculated on the basis of personal income minus savings — to restrain consumption should also be considered. Unlike value-added and sales taxes, such a tax could be made very progressive. Bans on advertising tobacco, alcohol, gambling and prescription drugs are common internationally, but taxes to restrict advertising more generally would help to reduce consumption. Energy costs might also be made progressive by charging more per unit at higher levels of consumption.

 

    Legislation and incentives will also be needed to ensure that large companies — which dominate the global economy — are run more fairly. For example, business practices such as employee ownership, representation on company boards and share ownership, as well as mutuals and cooperatives, tend to reduce the scale of income and wealth inequality. In contrast to the 200:1 ratio reported by one analyst for the top to the bottom pay rates among the 100 largest-worth companies listed on the FTSE 100 stock-market index (see go.nature.com/3p9cdbv), the Mondragon group of Spanish cooperatives has an agreed maximum ratio of 9:1. And such companies perform well in ethical and sustainability terms. The Mondragon group came 11th in Fortune magazine’s 2020 ‘Change the World’ list, which recognizes companies for implementing innovative business strategies with a positive global impact.

 

    Reducing economic inequality is not a panacea for health, social and environmental problems, but it is central to solving them all. Greater Scandinavian type of inequality confers the same benefits on a society however it is achieved. Countries that adopt multifaceted approaches will go furthest and fastest." [1]

 

 

1. Nature 627, 268-270 (2024) By Richard G. Wilkinson & Kate E. Pickett

Kodėl būsto pirkimas, norint jį išnuomoti, yra toks pelningas?

 "Ameriką kamuoja gilus būsto trūkumas. Naujų namų statyba yra svarbu, bet taip pat brangu ir lėta. O tuo tarpu jau egzistuoja milijonai įperkamų namų. Problema ta, kad geranoriškos bankų reformos, sukurtos amerikiečiams apsaugoti — stumia šias vietas iš pirkėjų nepasiekiamos vietos į investuotojų kasą.

 

 Jei norime išspręsti būsto krizę, turime sudaryti sąlygas paprastiems žmonėms įsigyti šiuos būstus.

 

 Šiuo metu vienas iš penkių savininkų naudojamų namų visoje šalyje yra vertinamas mažiau, nei 150 000 dolerių.

 

 Šie „mažai dolerių kainuojantys namai“ jau seniai tarnavo, kaip pirmasis ekonominio mobilumo laiptelis milijonams amerikiečių šeimų. Tačiau per pastaruosius 15 metų hipotekos mažų dolerių vertės namams prieinamumas – hipotekos, kuria didžiąja dalimi buvo pasikliaujama, perkant šiuos namus – labai sumažėjo. „Pew Charitable Trusts“ skaičiuoja, kad nuo 2004 m. iki 2021 m. mažos hipotekos paskolos sumažėjo beveik 70 procentų.

 

 Mažų dolerių hipotekos nykimas iš esmės yra nenumatyta, po finansų krizės priimtų, taisyklių, skirtų padėti mažas pajamas gaunantiems namų ūkiams, pasekmė.

 

 Po to, kai 2007 m. sprogo būsto burbulas, žlugo keli šimtai bankų ir sukėlė pasaulinį finansų žlugimą, o milijonai namų savininkų prarado būstus dėl turto arešto. Reaguodama į tai, Kongresas priėmė 2010 m. Dodd-Frank Wall Street reformos ir vartotojų apsaugos įstatymą ir padidino Federalinės būsto administracijos (F.H.A.) paskolų, kurios pirmiausia aptarnauja, mažas pajamas gaunančius, skolininkus, kontrolę.

 

 Į nuostatas įtrauktos griežtesnės atitikties gairės ir didesni kapitalo reikalavimai, dėl kurių bankų sistema būtų mažiau linkusi žlugti ir apsaugotų skolininkus nuo hipotekos, kurios jie negalėjo sau leisti. 

 

Tačiau dėl išlaidų, susijusių su Dodd-Frank daugiau, nei 400 naujų taisyklių ir įgaliojimų laikymusi, daugumai bankų mažiau pelninga dirbti su nedidelėmis paskolomis. Šie pokyčiai neproporcingai pakenkė bendruomenės bankams, kurie ilgą laiką tarnavo, mažesnes pajamas gaunantiems, būsto pirkėjams.

 

 Net jei paskolos teoriškai yra prieinamos, maži namai dažnai neatitinka jų reikalavimų, nes yra per seni ir netvarkingi.

 

 Tai vis didėjanti problema, nes per pastarąjį šimtmetį statybininkai iš esmės nustojo statyti šiuos namus, nurodydami didėjančias žemės, medžiagų ir leidimų sąnaudas, taip pat didėjančius zonavimo ir namų savininkų asociacijų apribojimus. 2022 m. tik 8 procentai naujai pastatytų namų buvo 1400 kvadratinių pėdų (130 m2) ar mažesni, palyginti su beveik 70 procentų 1940 m.

 

 Dėl to būsimi namų savininkai atsiduria užrakinti savo senuose rajonuose ir kartais nuomojasi tuos namus, kuriuos norėjo nusipirkti. Kvartalai pertvarkomi, šalia kiemų, užkimštų krūmų šepečiu, kur pašto dėžutės perpildytos laiškais neatvykusiems šeimininkams, stovi kiemai su nupjauta veja. Ilgamečiai gyventojai nebepažįsta savo kaimynų, o dėl to atsirandantis neinvestavimo ciklas sustingsta namų vertė, o tai skatina tolesnę turtinę nelygybę. Nors namų, kurių vertė viršija 150 000 dolerių, kainos nuo 2009 m. iki 2019 m. pakilo maždaug 15 procentų, mažų, žemesnės, nei 150 000 dolerių vertės namų kainos per tą patį laikotarpį beveik nepakito.

 

 Naujoje ataskaitoje, kurią finansavo „Pew Charitable Trusts“, buvo analizuojami hipotekos ir demografiniai duomenys ir apklausta daugybė namų savininkų Sent Luise, Filadelfijoje ir El Pase. Visuose trijuose miestuose mūsų tyrimų grupės nustatė, kad per pastarąjį dešimtmetį smarkiai sumažėjo paraiškų dėl hipotekos paskolos ir patvirtinimų, skirtų namams, kurių vertė mažesnė, nei 150 000 dolerių.

 

 Vietoj to, didėjanti norma yra investuotojai, perkantys šiuos namus už grynuosius ir paverčiantys juos išnuomojamais objektais.

 

 Paimkite St Louis. Daugiau, nei 40 procentų, miesto 64 000 savininkų naudojamų, namų yra vertinami mažiau nei 150 000 dolerių, tačiau tik du iš 10 gyventojų, su kuriais kalbėjomės, galėjo užsitikrinti tradicinę būsto paskolą.

 

 Šis hipotekos trūkumas suteikia investuotojams galimybių. Kadangi mažiau pirkėjų turi išteklių sumokėti grynaisiais už namą, paklausa yra mažesnė, o pirkimo kainos slegiamos žemyn. Kadangi tiek daug potencialių pirkėjų turi likti nuomininkais, paklausa didėja, o nuomos kainos kyla. Visa tai daro būsto įsigijimą už grynuosius pinigus ir jo nuomą pelningesniu pasirinkimu.

 

 Ši dinamika ypač akivaizdi skurdesniuose Sent Luiso rajonuose, kuriuose vyrauja juodaodžiai. 2022 m. tik 90 žmonių sugebėjo gauti nedidelės vertės hipotekos paskolą iki 150 000 dolerių visoje šiaurinėje miesto pusėje (palyginti su 484 2007 m.). Šiaurės Sent Luisas per 15 metų  prarado beveik trečdalį savininkų naudojamų namų. Dauguma jų buvo paversti nuomojamais objektais, nors daugelis jų yra laisvi. „Yra daug apleistų, sugriuvusių namų ir dabar [jie] tiesiog verčiami buldozeriu“, – sakė vienas ilgametis nuomininkas interviu, surinktame reportaže.

 

 Tuo tarpu, nors Volstryto apetitas būstams žemiausioje rinkos dalyje yra aistringas: Urban Institute nustatė, kad 2018–2021 m. įmonės investuoja taip, kad  įsigijo beveik 30 procentų namų, kainuojančių mažiau, nei 100 000 dolerių, o tik 7 procentus namų, kainuojančių daugiau, nei 100 000 dolerių.

 

 Turime padėti paprastiems žmonėms įsigyti šiuos jau egzistuojančius įperkamus namus.

 

 Turėtume sudaryti sąlygas mažesniems bendruomenės bankams ir kredito unijoms, kurios istoriškai aptarnavo, mažas ir vidutines pajamas gaunančius, pirkėjus kaimo vietovėse, išrašyti mažas paskolas. Šie skolintojai kovoja su Dodd-Frank našta, nors jie buvo daug mažiau linkę užsiimti rizikinga praktika, dėl kurios buvo reikalingas šis reglamentas.

 

 Taip pat turime sudaryti sąlygas pirkėjams lengviau gauti hipotekos paskolas su remonto galimybe, tobulindami tokias programas, kaip F.H.A. 203(k) Reabilitacijos hipotekos draudimo programa. Ši programa leidžia pirkėjams įtraukti namų patobulinimus į savo F.H.A. hipoteką, tačiau tai yra sudėtinga skolininkams ir brangu skolintojams.

 

 Turėtume pakeisti paskolų pareigūnų kompensavimo praktiką, kad už kiekvieną suteiktą paskolą būtų nustatytas fiksuotas mokestis, o ne kompensaciją grįsti tik būsto paskolos procentine dalimi, nes tai pašalintų dvejones, su kuriomis susiduria paskolos pareigūnai, svarstydami paraiškas dėl nedidelės paskolos.

 

 Nė vienas sprendimas nepanaikins skolinimo įperkamiems namams kliūties. Atvirkščiai, kritiški patobulinimai kiekviename būsto pirkimo proceso etape padidins tikimybę, kad įprastos šeimos gali nusipirkti namus, kurių ieško." [1]

 

1. How We Unintentionally Created the Affordable Housing Crisis: Guest Essay. Panfil, Yuliya; Richardson, Craig J.  New York Times (Online) New York Times Company. Oct 3, 2024.

Why buying to rent it out is so profitable?

"America is in the throes of a deep housing shortage. Building new homes is important, but also expensive and slow. And in the meantime, millions of affordable homes already exist. The problem is that well-meaning banking reforms — created to protect Americans — are pushing these places out of buyers’ reach and into the coffers of investors.

If we want to fix the housing crisis, we must make it easier for regular people to buy these homes.

Currently, one in five owner-occupied homes nationwide is valued at less than $150,000.

 These “small-dollar homes” have long served as a first rung on the economic mobility ladder for millions of American families. But over the past 15 years, the availability of mortgages for small-dollar homes — the mortgages overwhelmingly relied on to buy these homes — has shrunk dramatically. Pew Charitable Trusts estimates that from 2004 to 2021, small-mortgage lending fell by nearly 70 percent.

The withering of the small-dollar mortgage is largely an unintended consequence of regulations passed after the financial crisis that were intended to help low-income households.

After the housing bubble burst in 2007, several hundred banks collapsed, sparking a global financial meltdown, and millions of homeowners lost their homes in foreclosure. In response, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and increased its scrutiny of Federal Housing Administration (F.H.A.) loans, which primarily serve low-income borrowers.

Provisions included stricter compliance guidelines and higher capital requirements, which would ostensibly make the banking system less prone to fail and protect borrowers from taking on mortgages they couldn’t afford. But the costs associated with adhering to Dodd-Frank’s more than 400 new rules and mandates make it less profitable for most banks to work with small loans. These changes disproportionately hurt community banks, which long served lower-income homebuyers.

Even where loans are theoretically available, small-dollar homes often don’t qualify for them because they are too old and in disrepair. 

That’s a growing problem because over the past century, developers have largely stopped building these homes, citing the rising costs of land, materials and permits, as well as rising zoning and homeowners association restrictions. In 2022, only 8 percent of newly built homes were 1,400 square feet (130 m²) or less, compared with nearly 70 percent in 1940.

As a result, prospective homeowners find themselves locked out of their longtime neighborhoods, sometimes renting the very homes they had wanted to buy. Blocks are being transformed, with trimmed lawns standing alongside yards choked with brush and mailboxes overflowing with letters to absentee landlords. Longtime residents no longer know their neighbors and the resulting cycle of disinvestment causes home values to stagnate, which drives further wealth inequality. While the prices of homes above $150,000 rose by about 15 percent between 2009 and 2019, small-dollar homes’ prices under $150,000 have barely budged over the same period.

A new report funded by Pew Charitable Trusts analyzed mortgage and demographic data and interviewed dozens of homeowners in St. Louis, Philadelphia and El Paso. In all three cities our research teams found a dramatic drop in mortgage loan applications and approvals for homes valued at less than $150,000 over the past decade.

 Instead, the increasing norm is investors purchasing these homes with cash and converting them to rental properties.

Take St. Louis. More than 40 percent of the city’s 64,000 owner-occupied homes are valued at less than $150,000, yet only two of the 10 residents we spoke with were able to secure a traditional mortgage loan to purchase one.

That dearth of mortgages makes opportunities for investors. Because fewer buyers have the resources to pay cash for a house, demand is lower, depressing purchase prices. And because so many would-be buyers must remain renters, demand increases and rents rise. All this makes purchasing a home for cash and renting it out a more profitable option.

This dynamic is particularly evident in St. Louis’s poorer, predominantly Black neighborhoods. In 2022, only 90 people managed to get a small-dollar mortgage loan under $150,000 across the entire northern half of the city (compared with 484 in 2007.) Northern St. Louis lost almost a third of its owner-occupied homes over the past 15 years. Most have been converted to rental properties, though many stand vacant. “There’s a lot of abandoned, broken-down homes and now [they are] just being bulldozed over,” said one longtime renter in interviews gathered for the report.

Meantime, while Wall Street’s appetite for homes at the lowest end of the market is voracious: The Urban Institute found that between 2018 and 2021, corporate investors purchased nearly 30 percent of homes costing less than $100,000, compared with just 7 percent of homes costing more than $100,000.

We must make it easier for regular people to purchase these affordable homes that already exist.

We should make it easier for smaller community banks and credit unions, which have historically served low- and moderate-income buyers in rural areas, to write small loans. These lenders are struggling under the burden of Dodd-Frank even though they were far less likely to engage in risky practices that necessitated the regulation.

We also need to make it easier for buyers to qualify for mortgage loans on fixer-uppers by improving programs like the F.H.A. 203(k) Rehabilitation Mortgage Insurance Program. This program allows purchasers to include home improvements in their F.H.A. mortgage, but is cumbersome for borrowers and costly for lenders.

We should change loan-officer compensation practices to provide a flat fee for every loan made, rather than basing compensation solely on a percentage of the mortgage, which would overcome the hesitation loan officers face in considering small-loan applications.

No single fix will unplug the lending bottleneck on affordable homes. Rather, critical tweaks at each step of the home-buying process will improve the odds that regular families can buy the homes they seek." [1]

1. How We Unintentionally Created the Affordable Housing Crisis: Guest Essay. Panfil, Yuliya; Richardson, Craig J.  New York Times (Online) New York Times Company. Oct 3, 2024.