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How The Wealth Gap Widens In Richer Cities

Economy
How The Wealth Gap Widens In Richer Cities

The wealth gap in the U.S. is undeniable, and it has only worsened and widened over time. Studies are now surfacing that shed some light on how severe the wealth gap is and how it is actually worse in some of the country’s most affluent cities.

The Demand Institute, a subsidiary of the Conference Board, conducted a detailed 18-month study of 2,200 of the largest cities and towns in the U.S. and surveyed 10,000 households about their housing situation. It was named “A Tale of 2000 Cities: how the sharp contrast between successful and struggling communities is reshaping America,” and its results are telling as to the current wealth gap across the nation. The report mainly looks at housing market dynamics, which are generally indicative of economic situations, as a house is often a family’s most valuable and visible asset.

Disparities in the Housing Market Point to the Wealth Gap

The statistics may be shocking. According to the report, the wealthiest 10 percent of participants accounted for 52 percent on the country’s total housing wealth, or $4.4 trillion, while the poorest 40 percent held only eight percent of total housing wealth, or $700 billion.

Housing value is indicative of the strength of communities throughout the U.S. and the disparity that exists, in some more than others, between the top and bottom level of housing wealth. Since 2000, the value of housing for the top 10 percent rose 73 percent, or by around $2 trillion in nominal dollars, while the bottom 40 percent of the housing market rose by 59 percent, or just $260 billion.

According to these figures, the lower 40 percent only saw 13 percent of the increase in nominal dollars that the top 10 percent enjoyed. In essence, in terms of housing value, the rich got richer, and the poor got poorer.

House

Another finding of the report is that home prices will rise 2.1 percent annually between 2015 and 2018. This indicates a slowdown from the sharp price gains of the past two years, caused by investors who bought into bargain-priced foreclosures. These gains will put national median prices near their 2006 peak, but when you adjust for expected inflation rates, those prices will actually be 25 percent below their 2006 level.

How the Wealth Gap Widens in Affluent Communities

According to the report, this recovery “masks wide local discrepancies, with some markets soaring ahead and others still very much distressed.” For example, among the top 50 largest metro areas, home prices will rise by 32 percent between 2012 and 2018, while the bottom five percent will have price gains of just 11 percent. This is while 50 percent of the U.S. communities in the report are still struggling to move forward following the Great Recession.

These largest metro areas with the most significant economic divides include Atlanta, San Francisco, Washington, New York, Chicago and Los Angeles. Not surprisingly, “these cities are home to some of the highest paying industries and jobs in the country,” according to Alan Berube, a senior fellow at Brookings Institution, which performed a recently released income disparity study of its own.

Housing

One way many of these cities are widening the wealth gap, however, is with the attractiveness of public housing and basic services on offer for low-wage workers. Also, a large portion of the country’s job growth has been centered on lower-wage careers, so as people move into lower-income jobs, the comparison of numbers of workers at either end of the spectrum will seem, at extremes, farther apart. These cities, however, may find themselves struggling to provide adequate public schooling and basic municipal services in the future as the tax base would be so narrow with so few people concentrating all of the wealth at the top.

USA Today reports that incomes for the top five percent of workers in Atlanta averaged $279,827 in 2012, which was almost 19 times more than what the bottom 20 percent of the city’s population earned. To put this into context, the top five percent of earners across the entire country have incomes 9.1 times greater than the bottom 20 percent.

While tech hubs like San Francisco have run into significant wealth gaps, not all tech communities are created equal. For example, Seattle’s income disparity actually declined since 2007, as well as in Denver. Austin saw only a mild uptick in relation to the other top cities on the list. In addition, not all of the 50 largest cities face extreme inequality, such as some in the West and Sun Belt, like Mesa, AZ, and Arlington, TX, which both tend to attract neither the highest nor lowest-paying jobs.

Other Factors Contributing to a Vast Wealth Gap

Yet another gap exists when you look at the rise of housing costs—such as prices, mortgage rates and rent—and thus affordability gaps will grow. According to the report, 41 percent of households have a moderate or severe housing-cost burden where more than 30 percent of pre-tax income goes toward essential housing expenses. As for renters, 31 percent spend between 30 and 50 percent of their pre-tax income on housing costs, and 25 percent actually spend over half of their income on housing costs.

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To make matters worse, the gap between how much the wealthiest Americans make and everybody else has also widened significantly. According to data compiled by Emmanuel Saez, an economist at University of California Berkeley, incomes for the highest-earning 1 percent of Americans soared 31 percent from 2009 to 2012 after adjusting for inflation. During the same period, income barely inched up at an average of 0.4 percent for everybody else. Again, somehow, the rich are getting richer, and the poor are getting poorer.

A wealth gap that is too wide can be unhealthy for a community and a country as a whole, particularly because it can slow economic growth. With jobs concentrated on the higher and lower ends of the economic spectrum, the middle class starts to disappear and the economy as a whole becomes unbalanced.

A Gallup poll shows that two-thirds of Americans are unhappy with the country’s distribution of wealth. President Obama has prioritized this issue, calling it “the defining challenge of our time,” and he has introduced the discussion to legislators. He’s also raised tax rates on the wealthier portion of the country making more than $398,350 last year, and he’s also pushing for a raise in the minimum wage. Republicans argue that these measures are unproductive and can stagnate job and economic growth.

Many cities and states across the nation are taking measures to decrease this wealth gap, but its prominence has made its mark on the country, its economy and its morale. Before too much of the middle class disappears, one can only hope that someone will figure out how to relieve this burden on the poor and bring them up to speed to compete with some of the wealthier Americans.

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