Do “real-life millionaires” buy McMansions?

The spending habits of millionaires tends to be a popular topic but few people discuss exactly what kind of house they live in:

A millionaire is a person with a net worth of $1 million or more. Net worth is the value of everything a person owns, minus all debts…

Such an individual could have a negative net worth, yet they drive a Range Rover and live in a McMansion. Meanwhile, the millionaire next door lives in a three-bedroom house and drives a Hyundai…

Although it’s a common misconception that millionaires spend their money on luxury vacations, clothing, houses, and cars, what I’ve learned in growing my own net worth — and speaking with other millionaires — is that after a certain point, money stops mattering as much as it once did.

This seems to line up with the accepted wisdom that many American millionaires are relatively frugal and made their way to that wealth through saving and hard work.

But, if millionaires are not buying all those McMansions, who is? The flip argument expressed above that there are plenty of people living a millionaire lifestyle or above their means does not apply in all cases either.

Part of the trick here might be disconnecting income from wealth. Having $1 million plus in wealth does not necessarily mean you have the kind of assets to put down a sizable down payment or make sizable payments on a large house. (Think of the people who have paid off their mortgages and have a lot in retirement and savings accounts – this is not always easy to access.) Some people might be willing to buy homes based on whether they can afford the monthly payments – does it roughly fall within 30-35% of my monthly take-home pay – while others would be unwilling to splurge on a McMansion.

To be honest, I have not seen a convincing article or set of data regarding McMansion owners. I would guess a good number are in the top 20% of earners in the United States but probably a good portion are also living paycheck to paycheck.

“Naperville named wealthiest city in the Midwest”

Add another distinction to those collected by Naperville over the last 15 years:

Naperville has been ranked the richest city in the Midwest in a list by personal finance website NerdWallet.

The city topped the region — and came in at No. 19 in the nation — in the rankings announced Monday…

NerdWallet rated cities with at least 65,000 people based on data from the U.S. Census Bureau, Zillow Research and credit bureau Experian.

In the Midwest, the runner-up — Carmel, Indiana — bested Naperville in only one category, with a median household income of $109,375, according to NerdWallet.

For its size – over 140,000 people – Naperville is unusually well-off with a high household income, a low poverty rate, and plenty of good white-collar jobs. There are certainly wealthier communities in the Chicago region and the Midwest but many of them are quite small and have little interest in growth.

How did Naperville get to this point? Two articles I have published help explain the suburb’s rise: a 2013 article in Urban Affairs Review that compares Naperville’s growth to West Chicago and Wheaton and a 2015 article in the Journal of Urban History that examines narratives about Naperville’s growth.

Sociologists provide limited hope for reversing inequality

Several sociologists, among other experts, provides reasons for hope and despair regarding the shift where “inequality in America has been on the rise. The result is an alarming concentration of wealth among the country’s very well-off.” As they discuss reasons for hope, I was struck that the policy prescriptions provided by these experts tended to be limited: generally smaller programs (like Moving To Opportunity) or local efforts. This could be the result of several factors: maybe an online article this isn’t the sort of venue to get into large-scale policy discussions; perhaps academics aren’t great at operating in the world of policy as opposed to diagnosing problems; or the scope of study among these academics has tended toward smaller-scale studies. An area where some experts did see hope was in the social movement activity of recent years which has pushed some of these issues into the larger public conversation.

It would be fascinating to ask a broader range of sociologists this question and to get specifics from them on what gives them despair or hope. It can be relatively easy to point out large trends – such as concentrated wealth – but it is more difficult to discuss and push for feasible change. I’m also reminded that the period of less concentrated wealth that people often look to as a shining example – the post World War II era – was the result of particular large events that were difficult to foresee (a worldwide depression, the biggest war the world has ever seen) and responses to these changes.

When you spend $2 million to block a nearby McMansion

The Washington Post profiles several neighbors who saved their neighborhood from a McMansion – but now may be on the hook for a big amount of money.

They had seen home after home in Bethesda, Md., torn down, replaced by behemoths boasting high ceilings, multiple gables and soaring porticoes. So when a small 1940s Cape Colonial on Oldchester Road was about to go on the market last year — and already attracting the attention of a well-known McMansion developer — three neighbors designed a custom-built approach to save it.

They pooled $2 million to buy, modernize and resell the old house. They hope the updated brick Colonial, which they expanded from three to six bedrooms, will preserve the charm of their neighborhood and maybe even make them a modest profit.

But the group’s attempt to flip the house — on a street where a 1999 Harrison Ford movie was filmed — has yet to pay off. The now-renovated home at 7812 Oldchester Road in the Bradley Woods neighborhood of Bethesda has been on the market since late August, its price having dropped from nearly $2.4 million to $2.175 million…

But the Bradley Woods triumvirate — a senior Justice Department official, a real estate lawyer and a high-end home designer — remain confident they made the right decision, despite the property lingering on the market for 3 1/ months, longer than the two-month average for a Bethesda home.

What is missing in this story is the amount of money and wealth that is needed to even make this move: most Americans opposed to McMansions or other changes to their neighborhood or community could not simply buy the property and then try to make some money off of it. Instead, they have to either convince their neighbors that this isn’t in their best interest (and this is a tough case to make when so much money is on the line on what typically is most people’s biggest single investment in life) or go through the regulatory and legal process to attempt to block the teardown. All of this might lead to negative interactions as it pits property rights versus what the neighbors or community feel might be in their own best interests (and it often is about collective property values). But, if you have resources, you can just take care of the problem yourself.

A need to better measure financial support and wealth passed to Millennials

A look at how race affects the financial support given by parents to Millennials includes this bit about measurement:

Shapiro said the numbers of Millennials receiving support from family are “absolutely underestimated” because many survey questions are not as methodical and specific as those a sociologist might ask. “As much as 90 percent of what you’ll hear isn’t picked up in the survey,” he said.

Shapiro’s more careful research found this:

Shapiro’s work pays special attention to the role of intergenerational family support in wealth building. He coined the term “transformative assets” to refer to any money acquired through family that facilitates social mobility beyond what one’s current income level would allow for. And it’s not that parents and other family members are exceptionally altruistic, either. “It’s how we all operate,” Shapiro said. “Resources tend to flow to people who are more needy.”

Racial disparity in transformative assets became especially striking to Shapiro during interviews with middle-class black Americans. “They almost always talk about financial help they give family members. People come to them,” Shapiro said. But when he asked white interviewees if they were lending financial support to family members, he said, “I almost always get laughter. They’re still getting subsidized.”…

To many Millennials, the small influxes of cash from parents are a lifeline, a financial relief they’re hard pressed to find elsewhere. To researchers, however, it’s both a symptom and an exacerbating factor of wealth inequality. In a 2004 CommonWealth magazine interview, Shapiro explained that gifts like this are “often not a lot of money, but it’s really important money. It’s a kind of money that allows families to obtain something for themselves and for their children that they couldn’t do on their own.”

Two quick thoughts:

  1. Americans tend not to like to talk about passing down wealth but decades of sociological research (as well as research from others) shows that it happens frequently and is quite advantageous for those who have wealth passed to them. I recommend looking at Shapiro and Oliver’s book Black Wealth/White Wealth.
  2. Polls like those cited here from USA Today could lead to lots of problems just because the measurement is not great. Why not ask better poll questions in the first place? I understand there are likely limits to how many questions can be asked (it is costly to ask more and longer questions) but I’d rather have sociologists and other social scientists handling this rather than the media.

“How [residential] segregation destroys black wealth”

A recent New York Times editorial highlights the ongoing effects of residential segregation:

Despite being better qualified financially, black and Latino testers were shown fewer homes than their white peers, were often denied information about special incentives that would have made the purchase easier, and were required to produce loan pre-approval letters and other documents when whites were not.

Moreover, real estate agents enforced residential and school segregation by steering home buyers into neighborhoods based on race. Whites were encouraged to live where the schools were mainly white; African-Americans where schools were disproportionately black; and Latinos where schools were disproportionately Latino…

This history of discrimination has taken an enormous toll on black wealth, as is shown in research by Douglas Massey and Jonathan Tannen at Princeton University’s Office of Population Research. In 1970, two years after the passage of the Fair Housing Act, for example, the average well-off black American lived in a neighborhood where potential home wealth, as measured by property values, stood at about only $50,000 — as opposed to $105,000 for affluent whites and $56,000 for poor whites.

By 2010, affluent African-Americans had passed poor whites in potential home wealth but had fallen further behind affluent whites. There is more than money at stake, Mr. Massey and Mr. Tannen write, because home values “translate directly into access to higher quality education given that public schools in the United States are financed by real estate taxes.”

From de jure to de facto segregation. The resources of the past went to white suburbia and the deck is still often stacked against black and Latino urban residents. And the wealth differences are large and this has consequences for subsequent generations.

This editorial appears to be motivated by a recent housing discrimination complaint. This reminds me of the conclusion of American Apartheid where the authors argue that although the United States has the laws on the books that would even out housing opportunities, we often lack the political will to enforce them. This book was published over twenty years ago and there appears to be truth to it still today…

Naperville named safest American city over 100,000 people

Niche.com recently named Naperville the safest American city:

The rankings were based on evaluations from 215 cities with populations of more than 100,000 residents and included analysis of the city’s violent and property crime data, including murder, assault, robbery, burglary, larceny and vehicle theft rates.

Niche, a Pittsburgh-based ranking and review web site, used the 2013 FBI Uniform Crime Report “Crime in the United States,” an annual publication that reports the number and rate of violent and property crime offenses. They then used a formula to determine the city’s safety ranking, which includes weighting the crime by category: murder rate at 30 percent; assault and robbery at 20 percent each; and burglary and larceny at 10 percent each.

Two Naperville officials are quoted in the story praising crime prevention efforts. This helps but my guess regarding the bigger factor is the wealth of the community. According to the latest (2013) Census estimates: Naperville has a median household income of $108,302, the poverty rate is 4.1%, and the percent of residents with a high school degree is 96.5% and 65.9% have a bachelor’s degree. There are plenty of wealthy communities in the United States but they tend to be smaller. Once you get cities bigger than 100,000, it is hard to find many that have the number of educated and wealthy residents as Naperville.