Peter Thiel Warns of Real Estate Catastrophe

Last updated: January 16, 2025

Famed investor Peter Thiel recently expressed his concerns that the United States is heading towards a real estate 'catastrophe'. The controversial yet undeniably brilliant thinker cited Henry George's theory of real estate inelasticity.

Peter Thiel Real Estate Catastrophe Video

Peter Thiel Real Estate Catastrophe Transcript

Henry George is this late 19th century economist who's considered quasi socialist in the late 19th century. He's considered semi libertarian in the early 21st century which maybe tells you something about how our society changed...

But the basic Georgist obsession was real estate and it was if you weren't really careful, you would get runaway real estate prices and the people who owned the real estate would make all the gains in a society because there's something extremely inelastic about real estate. Especially if you have strict zoning laws or things like this.

The dynamic ends up being that you add 10% to the population in a city and maybe the house prices go up 50% and maybe people's salaries go up but they don't go up by 50% and so the GDP grows but it's a giant windfall to the boomer homeowners and to the landlords. And it's a massive hit to the lower middle class and to young people who can never get on the housing ladder.

And there's sort of a way that I model what's happened in the US, in Britain, in Canada, a lot of the anglosphere countries is a Georgist real estate catastrophe all sorts of places where the real estate prices the rents have gone up more and more.

If we talk about the inflation problem, there's a way you could talk about inflation in terms of you know the prices of eggs or groceries but you know that's not that big a cost item even for lower middle class people. The really big cost item is the rent I think in some ways Trump and JD Vance did manage to shift the conversation a little bit to this real estate problem. And again I don't want to you know blame it all on immigration but if you just, you know, add more people to the mix and you're not allowed to build new houses because of zoning laws or it's too expensive or it's too regulated and restricted, then the prices go up a lot.

And it's this incredible wealth transfer from the young and the lower middle class to the upper middle class and the landlords and the old and there are reasons you might not want to do that.

Key Takeaways from Thiel's Interview

• The imbalance between the supply of housing and the demand/need for housing has created a phenomenon where housing prices are increasing faster than wages, making ownership of real estate increasingly difficult for younger generations.
• Local, state and federal governments needs to make housing easier and more cost effective to build. The most glaring opportunity is zoning law reform.
• The wealth effect of owning real estate is undeniable, you should own real estate, purchased at attractive value, to avoid this risk of facing extreme rent inflation, the largest component of your living expense.
• If we don't address and solve this problem, there will be powerful and dangerous social and economic consequences.

Who was Henry George?

Henry George (1839–1897) was an American political economist and journalist, best known for his ideas about land ownership and taxation, which he presented in his seminal book, Progress and Poverty (1879). George's work focused on the relationship between land, economic inequality, and societal progress, and his ideas became the foundation of the economic philosophy known as Georgism.

Key Contributions and Ideas

1. The "Single Tax" on Land:

George argued that land, unlike labor and capital, is a fixed resource, and its value is created by the community rather than by individual landowners. He proposed a "single tax" on the unimproved value of land as a way to address economic inequality. This tax would replace all other taxes and fund public expenditures, thereby discouraging land speculation and making land use more efficient.

2. Critique of Inequality:

George observed that technological and industrial progress often resulted in increased wealth disparities. He attributed this to the monopolization of land and natural resources.

He believed that equitable access to land was essential for reducing poverty and ensuring fair distribution of wealth.

3. Land Value and Social Justice:

George emphasized that the value of land increases due to societal development (e.g., infrastructure, population growth) rather than individual effort. Therefore, taxing this value would prevent individuals from profiting at society's expense.

4. Influence on Urban Planning and Public Policy:

George's ideas influenced urban planning, public finance, and social reform movements in the late 19th and early 20th centuries. Several cities experimented with Georgist policies, and his work inspired figures like John Dewey, Leo Tolstoy, and even parts of the New Deal.

Legacy

Henry George's ideas remain influential among economists, urbanists, and social reformers who focus on wealth inequality and land reform. Although Georgism never became a dominant economic system, his insights into land value taxation continue to inform debates about property taxes, housing affordability, and economic justice.

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