Has Kevin Erdmann decisively figured out why we seem to be in a perpetual “vibecession,” where people feel much worse off economically than the usual numbers — real wages, household incomes and consumption, etc. — would justify? A situation with major political implications, in that every administration successively finds itself disappointing its supporters who believed promises of falling costs of living and rising prosperity.

He argues, in a new paper for the Mercatus Center, “We Are Not as Wealthy as We Thought We Were,” that a large portion of the wealth of U.S. households, which is found in the value of their homes, is, in fact, not real wealth, but a result of being trapped in rising cost accommodations in a housing-poor society. Here is the abstract:

From 1975 to 2023, the total value of residential real estate in the United States increased by 59 percent relative to incomes. It is tempting to equate this with increased wealth, but in fact, it signals regressive economic decline relative to the baseline. A series of three observations leads to this conclusion: (1) When aggregate real estate wealth grew because new and better homes were being constructed, it represented real wealth. For more than four decades, the construction of new homes has declined, and higher valuations are due to rent inflation on existing homes. Higher prices on unchanging assets do not represent real wealth. (2) Traditionally, as family incomes increased, aging homes filtered down to new tenants with lower incomes. The decline in new home construction has reversed that process. Today, successive tenants in existing homes frequently have higher incomes than the previous tenants. In other words, the typical American family today lives in worse housing compared to families in recent decades with the same real incomes but pays a larger portion of income for it. (3) In seven years, from 2015 to 2022, American real estate valuations increased by 20 percent relative to incomes. During that period, rising rents reduced household incomes, net of rent, in the lowest income quintile by 15 percent. Higher aggregate housing wealth is associated with regressively lower real incomes. The implication of these observations, as a group, is that the high measure of American real estate wealth is not the result of better housing and rising standards of living. It is the result of a regressive transfer of incomes from tenants and new homebuyers to existing real estate owners. The rate of new home construction has become so constrained that many families have been unable to reduce their consumption of housing at a fast enough pace to maintain historically normal nominal housing expenditures in the face of rising rents. Frequently that is because economizing for families with the lowest incomes requires displacement from their home neighborhoods or regions. The late-20th-century rise in reported household real estate wealth largely reflects families’ resistance against moving under economic duress in a housing-poor economy.