How the Housing Market Became a Trap for the Next Generation

Commentary

Most conversations about housing start the same way: Prices are out of control and the system is broken.

Recently, real estate broker Ryan Serhant offered a different perspective, arguing that the market isn’t broken—it is “rigged exactly as designed.”

Although “rigged” is a provocative term, it points to a reality worth exploring: Today’s market is the predictable result of incentives that, decade after decade, push in one direction.

The system rewards existing property owners, makes scarcity profitable, and raises barriers for everyone else. A pivotal moment in this shift was the 1997 U.S. tax reform, which allowed homeowners to exclude up to $500,000 in capital gains on their primary residence. This change solidified the cultural idea of a home as a “nest egg.”

When combined with restrictive zoning and local opposition to development, scarcity stops being a “bug” and becomes a “feature.”

However, this isn’t just an American policy mess. We see the same affordability crisis across Canada, the UK, Australia, and much of Europe—places with vastly different tax systems and political traditions. This suggests a deeper, global structural shift.

Shelter Becomes Asset

In the Western world today, the fundamental role of housing has been inverted—it is now treated first as a financial asset and second as shelter. Once this happens, incentives realign. We see a similar dynamic in bitcoin; designed as a currency, it became a store of value once widespread appreciation was expected.

When reliable price growth in housing is anticipated, “holding” becomes the only rational choice. Building nearby looks like a threat to one’s net worth, and price declines are viewed as a catastrophe rather than a correction. Scarcity stops signaling a societal failure and starts looking like value preservation. In this environment, housing no longer behaves like a consumer good, for which falling prices are celebrated as progress.

The Monetary Pull

This shift is a consequence of housing’s role within a debt-based, asset-oriented monetary system. Since the mid-20th century, advanced economies have relied on managed inflation and credit expansion to smooth economic cycles. Although this responded to historical traumas such as depressions and wars, it created powerful downstream effects.

Inflation erodes the value of idle cash, while debt becomes easier to service over time as nominal incomes rise. Housing possesses a rare combination of scarcity, “leverageability,” and political protection. As interest rates fall, cheap credit pulls future income forward, supporting higher prices.

Rory Sutherland, vice chairman of Ogilvy UK, noted a striking divergence: While technology and globalization have driven dramatic deflation in electronics, clothing, and travel, housing has moved in the opposite direction, absorbing the gains from everywhere else.

Savings Collapse and Forced Leverage

When assets are favored over cash, the traditional culture of saving erodes. Across the West, household savings rates have declined for decades. Many professionals now live with thin liquid buffers, their balance sheets heavy in assets but light in cash.

Thin buffers make time an enemy. People adapt by becoming “forced participants” in asset appreciation. Stretching for a massive mortgage isn’t necessarily reckless speculation; it is a rational response to a system that penalizes cash and makes leverage the only way to secure milestones such as retirement or education. Housing has morphed into a substitute for the social safety net.

Consequently, the entire system, including banks and governments, becomes hypersensitive to price declines, as any correction threatens systemic stability.

Why Demographics Didn’t Fix It

In theory, aging populations and falling fertility rates should reduce demand and lower prices. In practice, this hasn’t happened. First, housing demand is driven by households, not just headcounts. People marry later, divorce more, and live alone longer. Second, “immobility” increases with age; older owners downsize less than expected, meaning that existing stock circulates slowly. Finally, economic opportunity concentrates in a few high-productivity cities, creating intense local pressure even as national populations stagnate.

In an asset-dominated system, demographics lose their corrective power because falling demand threatens the leveraged balance sheets of the majority.

The Family Balance Sheet Illusion

There is a common belief that if a parent’s home quadruples in value, the family comes out ahead. The reality is more complex because families live across generations. One highly appreciated home does not, by itself, magically become three affordable households for adult children in the same labor market. One generation’s asset inflation becomes the next generation’s higher entry price.

Inheritance may help within “owning” families, but it creates no new supply and widens the inequality gap between those with parental help and those without. Over time, opportunity tilts from achievement toward lineage.

2 Operating Modes

Today, people inhabit the same economy yet experience it through two different “operating modes”:

• Leverage-Based Mode: Life is organized around obligations—mortgages and loans that depend on future income arriving on time. Stability depends on prices holding up and credit remaining available. Appreciation is not a bonus; it’s the plan.

• Optionality-Based Mode: Cash flow and liquidity matter more than headline returns. Debt is limited or tied to assets that service themselves. In this mode, a downturn is a tolerable pause or even an opportunity.

The housing system doesn’t just allocate homes; it allocates risk. Some households carry a staggering amount of it, while others carry very little.

Riding the Tiger

Why does this system persist despite its visible costs?

Politically, a majority of voters are homeowners protecting their largest asset. Any reform that might lower prices is experienced as an immediate personal risk.

Furthermore, while individual financial literacy could create the above-mentioned optionality, if adopted widely, it would slow the credit growth on which current economic mechanisms depend.

An ancient Chinese idiom describes this trap: “Riding a tiger—it’s hard to dismount.” Once households, banks, and governments are mounted on rising asset values, jumping off risks severe injury. Staying aboard, however uncomfortable, feels like the least bad option.

Another saying points to the natural limit: “When the melon is ripe, it falls.” Change may not come from a grand solution or a deliberate policy decision. Instead, it may arrive when accumulated pressures and eroded margins reach a threshold that no one can hold back. In the meantime, the most practical form of agency is to see the system clearly and understand exactly where you are exposed.

Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.