1 00:00:00,080 --> 00:00:02,480 Speaker 1: And he goes to his parents showing how it's a 2 00:00:02,520 --> 00:00:04,960 Speaker 1: great investment and if they'll only give him, you know, 3 00:00:05,000 --> 00:00:07,720 Speaker 1: three hundred and fifty thousand dollars, it will be a 4 00:00:07,720 --> 00:00:09,920 Speaker 1: great investment. Blah blah blah. The apartment is about one 5 00:00:09,920 --> 00:00:13,240 Speaker 1: point two million dollars. And the kicker, of course, is 6 00:00:13,280 --> 00:00:22,760 Speaker 1: that the apartment is five hundred square feet. Hi, and 7 00:00:22,800 --> 00:00:25,880 Speaker 1: welcome back to Bloomberg Benchmark let show about the global economy. 8 00:00:26,000 --> 00:00:28,680 Speaker 1: It is Thursday, September twenty nine, and I'm Keith Smith, 9 00:00:28,920 --> 00:00:31,120 Speaker 1: editor for Bloomberg News here in New York. I am 10 00:00:31,200 --> 00:00:34,560 Speaker 1: joined today by my co host, Dan Moss, Executive editor 11 00:00:34,640 --> 00:00:37,400 Speaker 1: for Economics, Hi Kate. Today we're going to be talking 12 00:00:37,440 --> 00:00:41,440 Speaker 1: about home price inequality. Now, it's no surprise that in 13 00:00:41,520 --> 00:00:44,400 Speaker 1: some metro areas of the United States, like New York 14 00:00:44,760 --> 00:00:49,199 Speaker 1: and San Francisco, home prices are incredibly expensive. What you 15 00:00:49,320 --> 00:00:53,120 Speaker 1: might not know is that the growth of house values 16 00:00:53,280 --> 00:00:58,840 Speaker 1: in those areas has significantly, and we mean significantly, outpaced 17 00:00:58,920 --> 00:01:01,440 Speaker 1: other parts of the country. It's true over the past 18 00:01:01,480 --> 00:01:05,080 Speaker 1: thirty years, apparently, prices in the twenty most expensive markets 19 00:01:05,319 --> 00:01:08,399 Speaker 1: have risen much faster and much much faster. Like Dan 20 00:01:08,480 --> 00:01:12,120 Speaker 1: was saying in prices in the twenty least expensive markets, 21 00:01:12,160 --> 00:01:14,720 Speaker 1: according to a truly A report that was written by 22 00:01:14,840 --> 00:01:18,200 Speaker 1: Ralph McLaughlin. For those of you who don't know, Trulya 23 00:01:18,319 --> 00:01:22,440 Speaker 1: is an online aggregator of real estate listings across the US. Now, Dan, 24 00:01:22,720 --> 00:01:25,840 Speaker 1: what I found really really interesting about this report is 25 00:01:25,840 --> 00:01:28,120 Speaker 1: that it confirmed this theory that I've had about New York, 26 00:01:28,360 --> 00:01:31,080 Speaker 1: specifically Manhattan for a while. In New York is so 27 00:01:31,280 --> 00:01:34,280 Speaker 1: unique to me in that it's a city of successful 28 00:01:34,319 --> 00:01:37,480 Speaker 1: wealthy people, but not just that those people had to 29 00:01:37,520 --> 00:01:40,800 Speaker 1: have been raised by successful wealthy people, and that I 30 00:01:40,840 --> 00:01:44,000 Speaker 1: think makes it really unique and completely cut off to 31 00:01:44,120 --> 00:01:46,679 Speaker 1: people who, let's face it, just didn't grow up with 32 00:01:46,720 --> 00:01:51,400 Speaker 1: financial stability. It's another take on this term inequality, which 33 00:01:51,440 --> 00:01:54,320 Speaker 1: seems to be everywhere at the moment. But before we 34 00:01:54,360 --> 00:01:57,240 Speaker 1: get to New York and spoiler a look, we're going 35 00:01:57,280 --> 00:02:01,080 Speaker 1: to talk about your apartment as well. Before we get 36 00:02:01,120 --> 00:02:03,040 Speaker 1: to New York and where he can still make it here, 37 00:02:03,080 --> 00:02:05,840 Speaker 1: let's focus first on the country as a whole to 38 00:02:05,960 --> 00:02:09,120 Speaker 1: talk about housing inequality. We have Robert Shiller on the 39 00:02:09,120 --> 00:02:12,800 Speaker 1: line joining us from New Haven, Connecticut. Robert's really the 40 00:02:12,840 --> 00:02:15,840 Speaker 1: gold standard when it comes to home prices. He's the 41 00:02:15,960 --> 00:02:19,760 Speaker 1: name behind the Case Shiller Index, the authority on housing 42 00:02:19,800 --> 00:02:22,880 Speaker 1: prices in America. He's a Nobel laureate, the second we've 43 00:02:22,880 --> 00:02:26,280 Speaker 1: had on the show, and currently Sterling Economic Professor at 44 00:02:26,400 --> 00:02:31,440 Speaker 1: Yale University. He probably even owns a house. Robert, thanks 45 00:02:31,480 --> 00:02:35,080 Speaker 1: so much for joining us. My pleasure, Bob. So I 46 00:02:35,080 --> 00:02:37,240 Speaker 1: want to get your thoughts on this trilier report. Do 47 00:02:37,280 --> 00:02:40,200 Speaker 1: you buy the idea that the most expensive areas in 48 00:02:40,200 --> 00:02:43,119 Speaker 1: the US are growing much much faster than the least 49 00:02:43,160 --> 00:02:47,320 Speaker 1: expensive that that seems to have an element of truth 50 00:02:47,360 --> 00:02:49,640 Speaker 1: to it. You have to specify the time and of 51 00:02:49,639 --> 00:02:54,079 Speaker 1: all that. I'm thinking. For example, San Francisco is among 52 00:02:54,120 --> 00:02:58,560 Speaker 1: the most expensive cities, and it has been growing lately, 53 00:02:59,200 --> 00:03:01,160 Speaker 1: but it's slowed down on a little bit in our 54 00:03:01,280 --> 00:03:06,200 Speaker 1: latest numbers. It's a complicated picture, of course. Historically the 55 00:03:06,240 --> 00:03:10,680 Speaker 1: most expensive places must have grown faster than others at 56 00:03:10,720 --> 00:03:14,760 Speaker 1: some point in history. But it's a complicated story. You know. 57 00:03:14,800 --> 00:03:19,680 Speaker 1: It's expensive places don't necessarily grow fast. I think maybe 58 00:03:19,720 --> 00:03:23,320 Speaker 1: it is happening now, but I'd have to carefully study 59 00:03:23,360 --> 00:03:27,680 Speaker 1: how accurate that statement is, and with a one year 60 00:03:27,840 --> 00:03:30,960 Speaker 1: time interval, So the truly report was actually looking at 61 00:03:31,000 --> 00:03:33,960 Speaker 1: a thirty year time horizon, and they were looking at 62 00:03:34,040 --> 00:03:38,160 Speaker 1: areas specifically like San Jose and San Francisco into the 63 00:03:38,200 --> 00:03:40,480 Speaker 1: Bay Area of course, and then New York and a 64 00:03:40,480 --> 00:03:43,360 Speaker 1: couple others, and that it was that those had grown 65 00:03:43,360 --> 00:03:47,160 Speaker 1: at such an exponentially larger, larger pace, faster pace. I 66 00:03:47,160 --> 00:03:50,720 Speaker 1: should say, Oh, you're talking Silicon Valley. Yes, I can 67 00:03:50,800 --> 00:03:55,120 Speaker 1: certainly believe that because there was a technological revolution in 68 00:03:55,160 --> 00:03:58,360 Speaker 1: the last thirty years and they're the center for that. 69 00:03:58,800 --> 00:04:01,160 Speaker 1: So I certainly believe that. And how about the New 70 00:04:01,240 --> 00:04:04,560 Speaker 1: York question, Well, New York is an expensive city, but 71 00:04:05,000 --> 00:04:08,920 Speaker 1: lately it hasn't been growing, not over thirty years. I 72 00:04:08,960 --> 00:04:11,720 Speaker 1: think it has grown substantially, but not as much as 73 00:04:11,760 --> 00:04:18,560 Speaker 1: people might think. New York has emerged as the financial 74 00:04:18,640 --> 00:04:24,440 Speaker 1: center that it is, uh since uh the early nineteenth century, 75 00:04:24,680 --> 00:04:27,480 Speaker 1: so it's had two hundred years. So you know, you 76 00:04:27,600 --> 00:04:30,120 Speaker 1: figure out what's the excess return on New York real 77 00:04:30,200 --> 00:04:33,680 Speaker 1: estate over two centuries, it's going to be something like 78 00:04:33,720 --> 00:04:36,919 Speaker 1: one percent a year. Nothing to get that excited about. 79 00:04:37,279 --> 00:04:41,880 Speaker 1: So people often make that mistake in judging differences between cities. Well, 80 00:04:42,000 --> 00:04:45,000 Speaker 1: talk about the long view. How do you account for 81 00:04:45,040 --> 00:04:50,880 Speaker 1: this difference between perception and what your dater is indicating. Well, 82 00:04:50,920 --> 00:04:54,479 Speaker 1: I think people are fascinated by the housing market and 83 00:04:54,839 --> 00:04:58,720 Speaker 1: they love to tell stories, but that doesn't mean they 84 00:04:58,720 --> 00:05:02,960 Speaker 1: ever look at data and do calculations. The cities that 85 00:05:03,000 --> 00:05:08,679 Speaker 1: have achieved high levels are not surprisingly glamorous cities, cities 86 00:05:08,720 --> 00:05:13,080 Speaker 1: that celebrities live in, and the stories about those cities 87 00:05:13,120 --> 00:05:18,720 Speaker 1: feel people's imagination. It's not surprising. We're human, most of 88 00:05:18,800 --> 00:05:22,479 Speaker 1: us aren't financial analysts. So in terms of real estate, 89 00:05:22,800 --> 00:05:26,960 Speaker 1: are these cities even part of the United States national economy? 90 00:05:27,080 --> 00:05:29,960 Speaker 1: Are they really part of an economy that is comprised 91 00:05:30,000 --> 00:05:35,560 Speaker 1: of sy Singapore, Dubai and neighborhoods in London? Well, uh, 92 00:05:35,640 --> 00:05:38,960 Speaker 1: the problem with real estate, it's a very diverse thing. 93 00:05:40,160 --> 00:05:43,479 Speaker 1: There's always a story practically for all of these. When 94 00:05:43,480 --> 00:05:47,560 Speaker 1: you say London, London has more stories written about it 95 00:05:47,560 --> 00:05:51,359 Speaker 1: than just about any other any other city, and it 96 00:05:51,440 --> 00:05:56,680 Speaker 1: has been a world financial center of great distinction. So 97 00:05:57,080 --> 00:06:02,799 Speaker 1: it seems plausible to investors from wherever, China, India, Russia, 98 00:06:02,880 --> 00:06:06,400 Speaker 1: wherever they're coming from, that's the place to put money. 99 00:06:06,440 --> 00:06:11,320 Speaker 1: And it's also London has a reputation for political stability, 100 00:06:11,440 --> 00:06:16,559 Speaker 1: and lack of usurpations. So all those things come together 101 00:06:16,600 --> 00:06:19,640 Speaker 1: to a story for London. I'm not surprised that there's 102 00:06:19,680 --> 00:06:24,040 Speaker 1: a vulnerability to bubbles in London real estate. Let me 103 00:06:24,120 --> 00:06:26,159 Speaker 1: jump in here and bring it back to the US 104 00:06:26,240 --> 00:06:28,479 Speaker 1: for just a second and kind of trying to tie 105 00:06:28,520 --> 00:06:31,680 Speaker 1: this together with income growth, I mean, in in your 106 00:06:31,720 --> 00:06:34,359 Speaker 1: own research and the way you've seen kind of the 107 00:06:34,360 --> 00:06:37,279 Speaker 1: way prices have evolved over the past thirty years. Is 108 00:06:37,320 --> 00:06:40,640 Speaker 1: there a strong correlation between income growth in a particular 109 00:06:41,200 --> 00:06:44,240 Speaker 1: area and the home prices or do they tend to 110 00:06:44,279 --> 00:06:51,039 Speaker 1: be decoupled. We find a correlation and forecasting we've found 111 00:06:51,160 --> 00:06:56,320 Speaker 1: especially useful employment growth that means more people coming into 112 00:06:56,320 --> 00:06:59,600 Speaker 1: the city, and you can find a fairly good correlation 113 00:06:59,680 --> 00:07:05,120 Speaker 1: between in home price increases across cities and employment growth. 114 00:07:05,240 --> 00:07:09,160 Speaker 1: So here's what happens. Some industry starts expanding in a city, 115 00:07:09,400 --> 00:07:12,440 Speaker 1: They start hiring and bring people in. There aren't enough 116 00:07:12,440 --> 00:07:16,160 Speaker 1: houses for all these people, so they start bidding against 117 00:07:16,160 --> 00:07:19,080 Speaker 1: the residents, and you know, some of the residents will 118 00:07:19,200 --> 00:07:23,240 Speaker 1: end up if they're lower income, they can't win the bid, 119 00:07:23,320 --> 00:07:25,480 Speaker 1: so they end up moving in with their parents or 120 00:07:25,520 --> 00:07:29,720 Speaker 1: something like that. But that stimulates the construction industry, and 121 00:07:29,760 --> 00:07:35,760 Speaker 1: the construction industry then increases the supply, and eventually prices 122 00:07:36,280 --> 00:07:39,080 Speaker 1: tend to come back down or at least slow their appreciation. 123 00:07:39,600 --> 00:07:42,440 Speaker 1: So that's a typical cycle of cities there. Their growth 124 00:07:42,520 --> 00:07:46,240 Speaker 1: is irregular through time, and you see bursts of home 125 00:07:46,280 --> 00:07:50,480 Speaker 1: price increases that will later very likely be reversed. Now fault. 126 00:07:50,560 --> 00:07:53,360 Speaker 1: That line about people moving in with their parents is 127 00:07:53,400 --> 00:07:56,360 Speaker 1: a good one. There's been a lot said and written 128 00:07:57,240 --> 00:08:00,920 Speaker 1: about that. Lightly Kite is a MILLENNIAU all herself and 129 00:08:01,000 --> 00:08:04,560 Speaker 1: has an interesting personal story, and Bob, i'd like you 130 00:08:04,600 --> 00:08:07,160 Speaker 1: to comment on whether you think that is part of 131 00:08:07,160 --> 00:08:09,240 Speaker 1: what's going on right now. And before I get into 132 00:08:09,280 --> 00:08:11,560 Speaker 1: my personal story, I'd like to get some numbers, because 133 00:08:11,560 --> 00:08:15,320 Speaker 1: it's not just me. Right. One in three adult children 134 00:08:15,520 --> 00:08:18,240 Speaker 1: in the US they receive monetary support of some kind 135 00:08:18,280 --> 00:08:20,600 Speaker 1: of their parents. And that's not just on the other 136 00:08:20,760 --> 00:08:23,280 Speaker 1: end of the spectrum of you know, the millennial sleeping 137 00:08:23,280 --> 00:08:26,680 Speaker 1: on their parents couch. It's the millennial receiving you know, 138 00:08:26,880 --> 00:08:29,200 Speaker 1: a rent subsidy from mom and dad so that they 139 00:08:29,200 --> 00:08:32,120 Speaker 1: can live in Manhattan and pursue their dream of whatever. 140 00:08:32,720 --> 00:08:35,280 Speaker 1: So one thing that I find interesting living in New 141 00:08:35,360 --> 00:08:37,560 Speaker 1: York is that there are very very few people I 142 00:08:37,640 --> 00:08:41,320 Speaker 1: know that have not received some kind of parental subsidy 143 00:08:41,360 --> 00:08:44,920 Speaker 1: along the way to get here. Me personally, I was 144 00:08:44,960 --> 00:08:47,600 Speaker 1: only able to move into my first apartment because my 145 00:08:47,679 --> 00:08:51,360 Speaker 1: parents were willing to co sign my lease and to 146 00:08:51,800 --> 00:08:55,520 Speaker 1: give our listeners a little peek into what the glamorous 147 00:08:55,840 --> 00:08:59,000 Speaker 1: life is like in New York. This was a maybe 148 00:08:59,160 --> 00:09:03,040 Speaker 1: three hundred fifty square foot studio if I'm being generous, 149 00:09:03,600 --> 00:09:08,640 Speaker 1: in Hell's Kitchen for sixteen fifteen a month, and what 150 00:09:08,760 --> 00:09:12,800 Speaker 1: that required was excellent credit and I'm talking like seven fifty. 151 00:09:13,080 --> 00:09:16,920 Speaker 1: My income had to be forty times the monthly rent, 152 00:09:17,120 --> 00:09:20,560 Speaker 1: and the guarant tour had to be eighty. So the 153 00:09:20,600 --> 00:09:22,480 Speaker 1: only way I could have moved into that apartment was 154 00:09:22,600 --> 00:09:24,800 Speaker 1: with my parents co signing at least, And I thought 155 00:09:24,840 --> 00:09:27,559 Speaker 1: that was fascinating. When I spoke to my friends, I 156 00:09:27,600 --> 00:09:30,360 Speaker 1: was actually receiving some of the least amount of support 157 00:09:30,440 --> 00:09:32,440 Speaker 1: some of them were getting, you know, I mean, I 158 00:09:32,480 --> 00:09:36,480 Speaker 1: have one friend whose mom pays for half her rent. Like, so, Robert, 159 00:09:36,520 --> 00:09:39,600 Speaker 1: can you tell me about how is the parental subsidy 160 00:09:40,040 --> 00:09:44,200 Speaker 1: issue impacting rents in places like Manhattan? It's interesting you 161 00:09:44,240 --> 00:09:47,920 Speaker 1: mentioned that my own son is not getting He has 162 00:09:47,920 --> 00:09:52,640 Speaker 1: an apartment in the New York near Manhattan. Um, maybe 163 00:09:52,679 --> 00:09:56,040 Speaker 1: he didn't go to Manhattan. Maybe it's cheaper a little 164 00:09:56,040 --> 00:10:00,320 Speaker 1: bit further out, but I think that yeah. I mean, 165 00:10:00,440 --> 00:10:04,000 Speaker 1: it's it's natural that this would happen because people have 166 00:10:04,040 --> 00:10:08,240 Speaker 1: an instinct to promote their own children. And I think 167 00:10:08,280 --> 00:10:11,160 Speaker 1: it's probably since time and memorial, right, they were doing 168 00:10:11,160 --> 00:10:14,760 Speaker 1: that in ancient Rome too. Our bet now, just to 169 00:10:14,880 --> 00:10:17,720 Speaker 1: bring it back to this issue of inequality, and Bob, 170 00:10:17,800 --> 00:10:20,320 Speaker 1: you know this better than anyone. It's a term that 171 00:10:20,360 --> 00:10:25,000 Speaker 1: has a lot of buzz right now. Picketty didn't specifically 172 00:10:25,120 --> 00:10:29,600 Speaker 1: discuss millennials and Manhattan real estate in his book, but 173 00:10:30,240 --> 00:10:35,599 Speaker 1: to the general idea of inequality, is this a manifestation 174 00:10:36,240 --> 00:10:40,439 Speaker 1: of inequality? Wealthy parents beget kids getting a foothold in 175 00:10:40,480 --> 00:10:43,680 Speaker 1: a major city, which begets the opportunity to work for 176 00:10:43,760 --> 00:10:51,719 Speaker 1: fantastic companies like Bloomberg. Is this fueling this inequality zeitgeist? Well, 177 00:10:51,760 --> 00:10:55,120 Speaker 1: I think that it's it's stronger than it was in 178 00:10:55,160 --> 00:11:00,720 Speaker 1: the past. That it's the millennial generation that I'm not 179 00:11:00,760 --> 00:11:03,800 Speaker 1: an expert on this, but my impression is they weren't 180 00:11:03,800 --> 00:11:07,360 Speaker 1: asked to do any household chores when they were children. 181 00:11:08,559 --> 00:11:14,720 Speaker 1: Used to be you did, But most parents today are 182 00:11:14,720 --> 00:11:19,040 Speaker 1: are preoccupied on getting their kids an advantage, So you 183 00:11:19,040 --> 00:11:21,160 Speaker 1: don't want them to do Most people don't want them 184 00:11:21,160 --> 00:11:23,560 Speaker 1: to do a household chores because that takes away from 185 00:11:23,600 --> 00:11:26,600 Speaker 1: their studying and they've got to get into a good 186 00:11:26,880 --> 00:11:30,160 Speaker 1: high school or a good college and a good job 187 00:11:30,240 --> 00:11:35,440 Speaker 1: after that. And parents, Uh, I think that's the sitegeist 188 00:11:35,640 --> 00:11:40,439 Speaker 1: right now, and so renting them an apartment in New 189 00:11:40,520 --> 00:11:44,560 Speaker 1: York sounds perfectly believable for for now, and I'm bet 190 00:11:44,640 --> 00:11:47,160 Speaker 1: it's much stronger than it was fifty or a hundred 191 00:11:47,240 --> 00:11:50,520 Speaker 1: years ago. Is that a good thing for economic mobility 192 00:11:50,559 --> 00:11:54,959 Speaker 1: in the country? Well, I think, Uh, what's the alternative? 193 00:11:55,160 --> 00:12:00,520 Speaker 1: Carl Marks okay, and with angles in eight wrote the 194 00:12:00,559 --> 00:12:03,920 Speaker 1: communists they didn't want to know about, but they want 195 00:12:03,920 --> 00:12:08,719 Speaker 1: to abolish the family. It didn't happen. I think this 196 00:12:09,280 --> 00:12:12,320 Speaker 1: shows that they were stronger on rhetoric than rhetoric than 197 00:12:12,360 --> 00:12:17,320 Speaker 1: they were on observing reality. Uh, there's a parental instinct 198 00:12:17,520 --> 00:12:20,720 Speaker 1: to want your children to do well. And once we 199 00:12:20,760 --> 00:12:25,000 Speaker 1: get past the marginal living, what do parents want to 200 00:12:25,000 --> 00:12:27,800 Speaker 1: do with their income is to help promote their children. 201 00:12:28,000 --> 00:12:31,920 Speaker 1: But of course the idea of parental support is is 202 00:12:31,960 --> 00:12:34,600 Speaker 1: certainly nothing new, obviously, But I think what I find 203 00:12:34,640 --> 00:12:38,160 Speaker 1: interesting is and it's universal, but it's not universal that 204 00:12:38,240 --> 00:12:42,160 Speaker 1: parents can afford that, right, So like only a certain 205 00:12:42,280 --> 00:12:46,079 Speaker 1: kind of parent and a certain kind of person can 206 00:12:46,440 --> 00:12:49,120 Speaker 1: is able to afford to spend that kind of money 207 00:12:49,120 --> 00:12:50,880 Speaker 1: on their kids. So I think I think that's what 208 00:12:50,920 --> 00:12:54,000 Speaker 1: we're talking about a little bit about the economic mobility question, 209 00:12:54,000 --> 00:12:57,720 Speaker 1: because it's not universal that everyone can move to New 210 00:12:57,760 --> 00:12:59,679 Speaker 1: York and have half their rent paid for by mom 211 00:12:59,679 --> 00:13:03,400 Speaker 1: and dad, right, right. And it's getting as you know, 212 00:13:04,000 --> 00:13:09,959 Speaker 1: Thomas Picquety showed that it's getting worse. I think it's 213 00:13:11,080 --> 00:13:14,319 Speaker 1: getting to the point where if you are in what 214 00:13:14,360 --> 00:13:18,400 Speaker 1: he calls the Tope one, there's almost no way to 215 00:13:18,440 --> 00:13:21,960 Speaker 1: spend the money on yourself. That's why you've ended up 216 00:13:22,040 --> 00:13:25,960 Speaker 1: lavishing it on your children, and that we would hope 217 00:13:25,960 --> 00:13:30,200 Speaker 1: they would do more on philanthropy, but somehow the children 218 00:13:30,360 --> 00:13:33,800 Speaker 1: get favored. What you described would certainly pick true in 219 00:13:33,840 --> 00:13:36,800 Speaker 1: some parts of the United States, but in others. I'm 220 00:13:36,800 --> 00:13:39,679 Speaker 1: thinking about New York City. To live the life that 221 00:13:39,800 --> 00:13:42,480 Speaker 1: you've described, you need a bit more than that wouldn't you. 222 00:13:43,080 --> 00:13:46,000 Speaker 1: I haven't done the calculations you think going out to 223 00:13:46,040 --> 00:13:48,520 Speaker 1: eat and going to show. I mean this figorite. We 224 00:13:48,559 --> 00:13:52,480 Speaker 1: can try to figure it out. But in all seriousness though, 225 00:13:52,480 --> 00:13:55,720 Speaker 1: I mean, there's been a lot said and written about 226 00:13:56,000 --> 00:13:59,640 Speaker 1: income disparity in various parts of the country. New York 227 00:13:59,640 --> 00:14:02,640 Speaker 1: Times had a big piece on this last Sunday, and 228 00:14:02,720 --> 00:14:06,360 Speaker 1: the extent to which this might be entrenched. The phenomenon 229 00:14:06,480 --> 00:14:10,720 Speaker 1: that we're talking about in say New York City or 230 00:14:10,960 --> 00:14:16,240 Speaker 1: San Francisco, has measured over the past thirty years. Again, 231 00:14:16,320 --> 00:14:19,920 Speaker 1: just to press you on this, it is fueling this 232 00:14:20,200 --> 00:14:26,960 Speaker 1: sense of inequality and political and economic discomfort. I think 233 00:14:26,960 --> 00:14:31,560 Speaker 1: that it's the trouble of our times, and it's reflected 234 00:14:31,600 --> 00:14:38,760 Speaker 1: in the election campaign recent election campaign. I think if 235 00:14:38,760 --> 00:14:41,400 Speaker 1: you read Toma Picat, I'm trying to pronounce it right. 236 00:14:41,480 --> 00:14:47,480 Speaker 1: He's French, okay. Uh. The A lot of what's in 237 00:14:47,600 --> 00:14:51,160 Speaker 1: his book is a discussion of the literature at the 238 00:14:51,400 --> 00:14:55,160 Speaker 1: at different times in history, notably the so called Gilded Age, 239 00:14:55,760 --> 00:15:02,040 Speaker 1: around when inequality was especially add and he argued that 240 00:15:02,120 --> 00:15:05,880 Speaker 1: it affects their their whole sense of life and living 241 00:15:05,960 --> 00:15:09,360 Speaker 1: and even romance. You know, a lot of novels of 242 00:15:09,480 --> 00:15:14,240 Speaker 1: that time would talk about marrying into wealth because that 243 00:15:14,440 --> 00:15:18,520 Speaker 1: was perceived as the only way you could arrive inequality 244 00:15:18,520 --> 00:15:23,120 Speaker 1: being so high. Now, Kate, you have some more stories, 245 00:15:23,600 --> 00:15:26,240 Speaker 1: some of which might surprise our listeners, but they may 246 00:15:26,280 --> 00:15:32,160 Speaker 1: not surprise Bob. It's beyond parents um being sort of 247 00:15:32,200 --> 00:15:35,440 Speaker 1: hassled by their children to contribute to a down payment, 248 00:15:35,720 --> 00:15:38,640 Speaker 1: and it's beyond rental subsidies, and it's beyond your own 249 00:15:38,680 --> 00:15:44,160 Speaker 1: experience of least guaranteurs. You know, people who are doing 250 00:15:44,280 --> 00:15:49,760 Speaker 1: spreadsheet presentations for their parents about liquidity and rates of 251 00:15:49,840 --> 00:15:52,000 Speaker 1: returning if only they can help them with the down 252 00:15:52,080 --> 00:15:55,000 Speaker 1: payment exactly. And I think that's I mean, it almost 253 00:15:55,040 --> 00:15:58,800 Speaker 1: seems like a parody. It is. I mean, are you 254 00:15:59,680 --> 00:16:04,080 Speaker 1: saying that they're optimistic about housing as an investment. Yes. Absolutely. 255 00:16:04,160 --> 00:16:07,000 Speaker 1: I was talking to a friend last night, and I 256 00:16:07,000 --> 00:16:10,680 Speaker 1: should mention that he he owns an apartment on the 257 00:16:11,600 --> 00:16:14,480 Speaker 1: Midtown East. He doesn't actually live in it, though, and 258 00:16:14,520 --> 00:16:18,360 Speaker 1: he was talking about how he views New York real estate, 259 00:16:18,440 --> 00:16:20,520 Speaker 1: and he is not American. He views New York real 260 00:16:20,640 --> 00:16:24,280 Speaker 1: estate as the ultimate investment that he could possibly make 261 00:16:24,320 --> 00:16:27,880 Speaker 1: with his money, because it is to him always growing 262 00:16:27,880 --> 00:16:30,160 Speaker 1: you're never gonna you're hardly ever going to experience a 263 00:16:30,240 --> 00:16:32,600 Speaker 1: loss in New York City real estate. And then it's 264 00:16:32,640 --> 00:16:35,080 Speaker 1: liquid and more. Look what I should say, then, let's 265 00:16:35,080 --> 00:16:37,160 Speaker 1: say a hedge funder private equity. So if he wants 266 00:16:37,200 --> 00:16:41,200 Speaker 1: to park a million dollars, what better way to do 267 00:16:41,240 --> 00:16:43,680 Speaker 1: it than Manhattan real estate to him? So it's not 268 00:16:43,800 --> 00:16:46,280 Speaker 1: like dad kind of borrowed the car. He sits his 269 00:16:46,400 --> 00:16:51,160 Speaker 1: parents down and does a spreadsheet presentation based on rights 270 00:16:51,160 --> 00:16:53,240 Speaker 1: of return as a wife of persuading his parents to 271 00:16:53,320 --> 00:16:55,600 Speaker 1: cough up a down payment. Bob, you're gonna love this. 272 00:16:55,640 --> 00:16:58,560 Speaker 1: So the guy who bought that apartment, he was able 273 00:16:58,600 --> 00:17:00,320 Speaker 1: to afford it on his own, but I know another 274 00:17:00,400 --> 00:17:03,520 Speaker 1: person who I mean, I guess he didn't really afford it. 275 00:17:03,560 --> 00:17:05,680 Speaker 1: But anyway, so he wants to buy an apartment in 276 00:17:05,680 --> 00:17:07,960 Speaker 1: the West Village. And for our listeners who aren't in 277 00:17:08,040 --> 00:17:10,679 Speaker 1: New York, West Village is I think one of the 278 00:17:10,760 --> 00:17:14,280 Speaker 1: most expensive neighborhoods in Manhattan. It's beautiful, it's you know, 279 00:17:14,400 --> 00:17:16,600 Speaker 1: tree lined. When you think of New York, this is 280 00:17:16,600 --> 00:17:19,359 Speaker 1: the neighborhood you're thinking of. Probably, So anyway, so he 281 00:17:19,400 --> 00:17:23,119 Speaker 1: wants to buy an apartment in in that neighborhood, and 282 00:17:23,160 --> 00:17:25,919 Speaker 1: he goes to his parents and he comes up with 283 00:17:26,040 --> 00:17:29,720 Speaker 1: a power point presentation showing how it's a great investment 284 00:17:29,800 --> 00:17:31,920 Speaker 1: and if they'll only give him, you know, three hundred 285 00:17:31,960 --> 00:17:34,840 Speaker 1: and fifty thou dollars, it'll be you know, they'll make 286 00:17:34,840 --> 00:17:37,400 Speaker 1: their money back. It'll be a great investment. Blah blah blah. 287 00:17:37,400 --> 00:17:40,840 Speaker 1: The apartment is about one point two million dollars, and 288 00:17:40,880 --> 00:17:43,520 Speaker 1: they agree, and it's just this investment that they view. 289 00:17:43,720 --> 00:17:45,600 Speaker 1: And the kicker, of course, is that the apartment is 290 00:17:45,600 --> 00:17:49,160 Speaker 1: five hundred square feet. And I think that was kind 291 00:17:49,160 --> 00:17:50,560 Speaker 1: of like what Dan and I are talking to. Is 292 00:17:50,560 --> 00:17:56,120 Speaker 1: there just I mean, how many families have the liquidity 293 00:17:56,160 --> 00:17:59,040 Speaker 1: and the cash that they can just look at a 294 00:17:59,160 --> 00:18:01,600 Speaker 1: presentation say okay, yeah, that makes sense for me to 295 00:18:01,600 --> 00:18:05,560 Speaker 1: give to my kid. I just have to imagine that 296 00:18:05,560 --> 00:18:09,880 Speaker 1: that's not a universal phenomenon. It can't be. No, it's 297 00:18:09,920 --> 00:18:13,920 Speaker 1: not you're talking about. But that's who New York is now. 298 00:18:14,160 --> 00:18:19,760 Speaker 1: But this feels like it's of it does, and I 299 00:18:19,800 --> 00:18:22,960 Speaker 1: think making it more universal, that's to me what it 300 00:18:23,640 --> 00:18:26,520 Speaker 1: New York has become. Because that's the only way you 301 00:18:26,560 --> 00:18:29,440 Speaker 1: can buy a home in New York. By the way, 302 00:18:29,840 --> 00:18:35,240 Speaker 1: our numbers for New York metro area show a one 303 00:18:35,320 --> 00:18:39,120 Speaker 1: point seven increase in home prices over the last year. 304 00:18:39,680 --> 00:18:42,159 Speaker 1: Now is that New York, Brooklyn, all the borrows or 305 00:18:42,200 --> 00:18:45,359 Speaker 1: is that just Manhattan. Well, in fact, that is the 306 00:18:45,520 --> 00:18:50,320 Speaker 1: emphasizing in Manhattan really because we're talking about I don't 307 00:18:50,400 --> 00:18:55,600 Speaker 1: think we represent the co ops. Well, maybe it's not 308 00:18:55,840 --> 00:18:58,480 Speaker 1: the only number that you could look at. I think 309 00:18:58,720 --> 00:19:01,400 Speaker 1: New York, you know, the tens to go through periods 310 00:19:01,400 --> 00:19:05,000 Speaker 1: of strength and weakness, and New York was weakened by 311 00:19:05,000 --> 00:19:09,119 Speaker 1: the financial it being a financial center. Of course, London 312 00:19:09,200 --> 00:19:12,040 Speaker 1: is still going up. And I can't really explain all 313 00:19:12,080 --> 00:19:15,920 Speaker 1: these things. But I'm wondering what the spreadsheet that this 314 00:19:16,200 --> 00:19:19,879 Speaker 1: person showed and what the time horizon was. But I 315 00:19:19,960 --> 00:19:25,119 Speaker 1: have a spreadsheet showing US home price, not Manhattan, US 316 00:19:25,200 --> 00:19:29,560 Speaker 1: home prices back to eight and it shows that between 317 00:19:29,640 --> 00:19:34,440 Speaker 1: eighteen ninety and nine, home prices in the US did 318 00:19:34,440 --> 00:19:39,119 Speaker 1: a little better than increase with inflation. But there's often 319 00:19:39,160 --> 00:19:43,080 Speaker 1: been an idea that it's done well. It seems to 320 00:19:43,119 --> 00:19:46,560 Speaker 1: be apocryphal, but it does. Of course. I mean, of 321 00:19:46,600 --> 00:19:51,639 Speaker 1: course New York has become an expensive city, and that 322 00:19:51,800 --> 00:19:55,399 Speaker 1: happened over a long time, and it gave people, you know, 323 00:19:55,480 --> 00:19:58,840 Speaker 1: one or two percent a year return on capital gains. 324 00:19:59,520 --> 00:20:01,679 Speaker 1: I find it a little strange that people are so 325 00:20:01,800 --> 00:20:06,160 Speaker 1: excited about it at various times, but that's human nature, 326 00:20:06,240 --> 00:20:10,720 Speaker 1: I suppose, so, Bob, again taking the long view, and 327 00:20:11,000 --> 00:20:14,160 Speaker 1: you're very good at this, looking at these cycles over 328 00:20:14,200 --> 00:20:18,120 Speaker 1: the past hundred hundred fifty years, seeing what you see now, 329 00:20:18,680 --> 00:20:22,840 Speaker 1: discussing what we're discussing now in the big picture. How 330 00:20:22,920 --> 00:20:26,280 Speaker 1: does this end for our economy? Well, I hope there 331 00:20:26,359 --> 00:20:32,320 Speaker 1: isn't an end for our economy. Um, the bubble and 332 00:20:32,400 --> 00:20:34,600 Speaker 1: burst that we saw that peaked in two thousand and 333 00:20:34,680 --> 00:20:39,399 Speaker 1: six was a huge historical anomaly. We've never seen anything 334 00:20:39,480 --> 00:20:44,840 Speaker 1: that dramatic. There was the the bubble in Florida in 335 00:20:44,680 --> 00:20:50,280 Speaker 1: the mid nineties, but that was more isolated. So I 336 00:20:50,320 --> 00:20:55,480 Speaker 1: don't know what to make of of these Uh why 337 00:20:55,520 --> 00:21:00,960 Speaker 1: are we likely to have that happen again? I don't maybe, 338 00:21:01,840 --> 00:21:04,960 Speaker 1: but right now it's not really happening. It's not that 339 00:21:05,080 --> 00:21:09,359 Speaker 1: dramatic on a broad scale. Maybe in certain places. Robert, 340 00:21:09,440 --> 00:21:11,959 Speaker 1: this has been a fascinating conversation. Thank you so much 341 00:21:12,000 --> 00:21:17,080 Speaker 1: for joining us. We've enjoined it immensely. Benchmark Will be 342 00:21:17,119 --> 00:21:19,320 Speaker 1: back next week, and until then, you can find us 343 00:21:19,359 --> 00:21:22,239 Speaker 1: on the Bloomberg Terminal and on Bloomberg dot com, as 344 00:21:22,240 --> 00:21:25,560 Speaker 1: well as on iTunes, podcast, and Stitcher. While you're there, 345 00:21:25,880 --> 00:21:27,719 Speaker 1: take a minute to rate and review the show so 346 00:21:27,760 --> 00:21:30,040 Speaker 1: that more listeners can find us and do let us 347 00:21:30,040 --> 00:21:32,040 Speaker 1: know what you thought of the show. You can talk 348 00:21:32,080 --> 00:21:34,800 Speaker 1: to and follow us on Twitter at at Daniel Moss 349 00:21:34,880 --> 00:21:37,880 Speaker 1: d C and at by Kate Smith, and you can 350 00:21:37,920 --> 00:21:40,119 Speaker 1: follow our guest as well. Robert can be found on 351 00:21:40,160 --> 00:21:44,800 Speaker 1: Twitter at at Robert J. Schiller. We'll have to get 352 00:21:44,840 --> 00:21:47,760 Speaker 1: your spreadsheet friend and here. I don't think he's going 353 00:21:47,800 --> 00:21:50,800 Speaker 1: to want to come in here after the show. See 354 00:21:50,800 --> 00:21:51,359 Speaker 1: you next week.