Do The Rich Cause High Rents?

One common argument against building new housing is that new construction will never reduce housing costs, because the influx of ultra-rich people into high-cost cities creates an insatiable level of demand.

I recently found a source of information that may be relevant to this argument: the Wealth Report, which lists the number of high-wealth individuals in a set of world cities, including five American cities (New York, Los Angeles, Chicago, Houston and Miami).  In particular, the report lists the number and percentage growth of “ultra high net worth individuals” (UHNWIs), which it defines as those with over $30 million in wealth.

It seems to me that if UHNWI growth was related to high housing costs, then the most expensive cities in this group (New York and Los Angeles) would have the highest UNHWI growth.  In fact, the number of UHNWIs grew most rapidly in Houston (63 percent) between 2005 and 2015.   By contrast, UNHWI growth in the other four cities ranged between 31 and 34 percent.

In Canada, UNHWI growth was higher, but roughly equal (ranging between 65 and 70 percent) in Toronto, Vancouver and Montreal- despite the fact that these cities have radically varying housing costs. The median housing unit price in Vancouver tops $1 million, about three times the median price in Montreal.

What about UNHWIs as a percentage of city population?  New York has 5600 of them in a city of 8.1 million*- just under 700 per 1 million.  Low-cost Chicago has 2030 in a city of 2.7 million- about 750 per 1 million. Houston has 1318 in a city of 2.1 million, or around 625 per million.  These differences don’t strike me as significant.

*I am assuming these people all live in the central city; I am not actually sure this is the case, but even if I am wrong this doesn’t change my conclusions.  Although NYC comes out ahead, all three cities would have between 200 and 280 UNHWIs per 1 million people.