The inequality in the accumulation of wealth is due to a growth in the value of real estate, while other forms of capital don't record a similar growth. At least that's what Quartz’s Reporter Tim Fernholz argues, saying that the rising cost of real estate will eat up an ever larger share of the world economy, with potential devastating consequences. Per Real Estate Weekly:
The debate revolves around Thomas Piketty’s recent blockbuster book “Capital in the 21stCentury”.
Real estate prices have been growing because population growth and urbanization make land in cities scarcer. The growing inequality noticed by Piketty is thus really a growing gap between income from real estate and income from everything else, Fernholz claims.
According to this reading, the rich are getting richer simply because they happen to own real estate. And as population growth and urbanization are expected to continue, growing home prices will consume an ever larger share of the world economy. This trend will suck capital from other, more productive industries and dampen growth.
This opinion doesn’t come without opposition though.
The argument is compelling and relatable. It is also highly questionable – mainly because British economist David Ricardo made a very similar claim more than 200 years ago and turned out to be wrong.
History suggests that growth in the value of a certain asset class is never as inevitable as it seems at the time. Ricardo was certain agricultural land would dominate global wealth, but the opposite occurred.