The middle class is shrinking in Utah at an alarming pace because of three fundamental problems:
- Wages for the past ten years in Utah have remained stagnant.
- Home prices for starter homes have increased by nearly double.
- Only tech-sector or six-figure income workers are able to afford starter homes in Salt Lake County
Why is this happening? The best clues come from following the money. Big money is moving into Utah from the largest Wall Street Corporations and largest money managers, venture capital groups, and asset managers.
Bill Gates was recently in bidding against the Mormon Church for farmland in Eastern Oregon. This is just one small example that demonstrates the extent of the current land grab underway. And it’s not just Bill Gates, but also the largest investment brokers and asset managers in the U.S.
The LDS Church also owns a massive amount of farmland throughout Utah. Their total holdings, according to Bloomberg, exceed 1 million acres of land throughout the United States under their shell corporation Ag Reserves Inc. The LDS Church is buying more land.
When we examine the current buying and selling trends of the largest asset managers in the country, we can see what the largest equity firms are doing to “chaise yields” and preserve wealth. Amazon CEO Jeff Bezos recently sold $2 billion in Amazon stock, Facebook CEO Mark Zuckerburg cashed in $2.8 billion in Facebook stock recently, and the largest asset managers in the world such as Blackrock are purchasing single-family homes. From these moves, it appears that the smart money is shifting from stocks into land and single-family homes. Why is this? Because by all measures the stock market appears highly overheated.
A key statistic not widely reported by the mainstream media is that in the first quarter of 2020 20% of all home purchases in the United States were made by institutional investment companies (AKA: Shadow banks and asset managers). These asset management companies are paying 20%-50% over asking price, driving up prices and reducing supply. But left-leaning sites like Vox.com claim Blackrock and institutional investors are not to blame. The total holdings of single-family homes by these companies represent a tiny fraction of the entire housing market. But it is worthwhile to examine the larger trends of the massive institutional investors and how they are shaping our current economy into something we have never seen before.
Blackrock, Vanguard and UBS, essentially “own Wall Street”, all together investment management companies own 41% of the entire market cap of all of the global markets. Each asset management company owns massive amounts of stock in Apple Computers, Amazon, Facebook, Alphabet, Tesla, and all of the top-performing stocks in the tech sector. Blackrock has seen total assets under their control increase from $7 trillion, in 2021 to over $9 trillion today. This matches half of the entire GDP of the United States. Blackrock is also in an increasingly cozy relationship with the United States Treasury Department as well as our Federal Reserve.
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Institutional Investment Companies Preventing Financial Collapse
In March 2020, (according to the New York Times) Treasury Secretary Steven Manuchen and Fed Chairman Jerome Powell met with the Blackrock CEO Lary Fink to determine the best course of action to prevent a massive financial collapse from occurring because stocks were in a nosedive. The Fed and Treasury Department decided to follow Lary Fink’s plan to buy up what was considered at the time “toxic assets” of corporate bonds that nobody wanted to buy on the open market. The solution: pour money into Wall Street like Draino, to prevent a backup.
The Fed’s bond-buying program has poured billions of tax-payers dollars freshly minted from the Fed to essentially bail out the largest corporations in the U.S. to remove their bad debt from their books so they could continue to report good news to shareholders and keep the bull market marching forward. So who’s bonds were they buying? Blackrock’s of course.
But why did they do this? And why aren’t they stopping?
Investor fears are greater now than they have been in the past decade. If the stock market were allowed to plunge in March 2020, while in the midst of a pandemic, it’s almost certain massive unemployment and financial ruin would be the outcome.
Since March in 2020 when the Fed’s “bond-buying program” began the stock market has risen to historic levels, and bank savings rates have plunged. More average investors are putting their money into stocks also “chasing yields”. If the Fed started raising interest rates this would benefit those who keep their money in banks, but it would certainly frighten Wall Street investors. Most experts now agree that the stock market is in a “massive bubble”. This is only due to the actions of the Fed following Blackrock’s CEO Lary Fink’s plan. The bubble will only burst when the Fed raises rates when inflation kicks into high gear, as it is currently doing. But scaring away the beast that has been laying the golden eggs for Wall Street, is giving Treasury Secretary Jannet Yellan pause about raising rates. Biden’s super generous unemployment benefits have caused millions of workers to stay home. This might be by design to prevent the economy from heating up too fast, requiring a rate hike, which would chase away Wall Street investors.
So the question comes down to who our national monetary policymakers are working for. Wall Street or Main Street? Giant investment firms (which represent the pensions of millions of Americans) or small businesses and average Americans? Average Americans are finding homeownership more out of reach than ever, and small business owners are finding labor more scarce than ever.
From Stock Market Bubble to a Housing Bubble
Most analysts now agree that we have an asset bubble in stocks, bonds, and real estate that very likely come crashing down. The only thing that is preventing the crash is near-zero levels of prime interest rates, which are the lending rates that the Fed offers to banks to feed money to developers, builders, and the elite who keep the cheap money flowing into the economy. Meanwhile, it’s the middle class that is getting the short end of the stick, as housing prices climb ever out of reach, and Wall Street’s money pours in driving prices higher and supply smaller.
What Can Average Investors and Local Governments Do to Mitigate its Effects?
Since the housing market collapse of 2008, institutional investors have been allowed to purchase single-family homes and turn these assets into investment vehicles. This was useful then because it prevented a complete nose-dive in housing prices, but today this is driving up prices in cities that have the highest rents.
According to a special report produced by CoreLogic’s study on investor purchases of single-family homes, buyers experiencing the greatest competition with institutional investors are mostly in high-rent areas, east of the Mississippi. The cities with the highest rents relative to home purchase prices. These cities include Atlanta, Philadelphia, Memphis, Detroit. Cities with the least amount of investor activity include Boise (Idaho), Ventura (California), Stockton (California), and El Paso (Texas). Cities, where home prices are high relative to rents, are less attractive to institutional investors, Utah falls closer into this category. 15% of all homes sold in Utah go to investors, which is below the national average. Utah’s home prices are rising so rapidly due to a lack of investment over the past ten years in homebuilding. Our supply is extremely low, and residents aren’t moving.
What can be done to drive housing prices down in Utah?
In short, zoning-law changes need to be made which could allow far more low-price single-family homes and townhomes to be built on very small lots in Utah. Smaller square footage homes, on smaller lots going for higher prices, will be the new reality for starter homes in Utah especially surrounding Salt Lake County, but this could happen if our State Legislature went to work.
Because so many of Utah’s politicians are developers and developers can earn significantly high returns on investment if they build for wealthy buyers, Utah’s political leaders have not made affordable housing a priority.
Perhaps only a citizen’s initiative could allow for the necessary zoning-law changes, which could open up more land to affordable housing. There is plenty of space for new affordable housing in abandoned big-box stores and other commercial retail centers such as the former Cottonwood Mall, but cities and developers have higher-value tax revenue generation ideas than affordable housing.
Meanwhile, apartments are being built at a rapid pace along the Wasatch Front in Utah, attracting money from developers from California to charge huge rents. Also, many of Utah’s political leaders are buying up or developing apartment buildings including Former House Speaker Greg Hughes; former Senate Speaker Wayne Niederhauser and Former Salt Lake County Mayor Peter Caroon.
The current land grab and increase in prices are benefiting Utah’s political leaders and elite, The LDS Church’s vast land holdings and portfolio. The question now comes down to, will our political leaders start working for middle and lower-class Utahns to prevent the continual growing divide between the rich and the poor? Or will they continue to serve themselves and their investments?
A Reason For Utah’s Legislature To Act on Affordable Housing
There is an incentive for Utah’s state leaders to act sooner rather than later on Utah’s housing crisis. If Millenials are not given the opportunity to buy affordable real estate and build equity, very likely the entire nation will continue to move to the left.
According to New York Magazine, in an article entitled, “Will The Great Wealth Transfer Spark A Millenial Civil War?” We learn that millennials are starting families and the largest segment of first-time home buyers are becoming jaded by the housing affordability crisis.
They are beginning to believe that perhaps a “Capitalist, free-market system” no longer works for them. Millennials whose only prospects are to rent and who have zero home equity by in large are far more supportive of the ideas of Bernie Sanders and leftist ideas of socialism and wealth confiscation. If our State Republicans really value keeping their wealth it might serve their own interests to take meaningful action on affordable housing for the next generation.
There is a solution to the problem of Utah’s middle class that political leaders want to ignore. We offer the solution to this problem in our Utah Stories podcast.
If you want to watch just the solution part of the video click HERE otherwise watch the full video below.
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