IN THE 1950s, the average New York City apartment rented for $60 a month — around $530 in today’s money. With the US median wage at $5,000 a year, New Yorkers spent 1/10 of their salaries on rent. After World War II, apartments were so cheap and available that Manhattanites would regularly move every September just to get the landlord to repaint their new home. In those days, an apartment was a place to live. Now it is as much an investment as shelter.


High real estate prices are good for the old and affluent. They are terrible for the poor and young. Today, the average Manhattan apartment rents for $3,800 a month, while median New York income is around $65,000 a year. If you are young and renting, your landlord eats his daily bread by the sweat of your brow. The flip side of affluent old people being able to retire is young people having to live with their parents.

If house prices fall, the middle aged and middle class will be in an uproar. For almost all of us, real estate is our principal, if not only, asset. If our house stops appreciating, our dreams of someday not having to work utterly evaporate. We vote and so politicians listen to our desires. Falling house prices would be a boon for renters and first-time buyers (and probably for society at large), but their political clout is less than that of middle-aged, middle-class property owners.

Perhaps even more critically, banks need house prices to rise, or at least not collapse. Traditionally, bank lending was to firms, providing small businesses or corporations investment and working capital. Today, most bank lending funds mortgages for families. What banks own, what offsets the liabilities they owe depositors, are mortgages. If house prices fall (as they did leading up to the financial crisis), so do the value of the mortgages underlying them. If they fall far enough, then banks become insolvent: the money they owe depositors exceeds the value of their assets. That, in essence, is what happened during the financial crisis. Had the government not backstopped the banks, you and I could quite easily have gone to the ATM, slipped in our card, and been told the money we thought was safe in our accounts was gone.