- Stocks have appreciated five times more in value than real estate since the 1950s.
- That's created more wealth for those who own stock — a group that is overwhelmingly white.
- During the COVID-19 period, wealth concentration in the US reached its highest level since World War II.
For many Americans, homeownership represents a path to building generational wealth.
But what if that idea is all wrong?
Stocks have appreciated in value five times more than homes over the last several decades — meaning Americans who invested their money in the stock market got much higher return than those who invested in real estate, according to a new report from the National Bureau of Economic Research.
It's is one reason for the widening racial wealth gap in the United States. Black Americans hold more of their wealth in real estate than in stock portfolios, which is to their detriment, NBER researchers said.
It also represents an counterintuitive attitude about investing in America overall. A study last year by the Federal Reserve Bank of New York found that over 90% of survey takers preferred owning their primary residence rather than investing in the stock market.
A majority of respondents also preferred the idea of being a landlord to buying stocks, with more than 50% of households saying they would rather own a rental property. Even after a year that saw housing affordability hit record lows and stock market values hit record highs, these attitudes persist.
"The preference for housing dipped in October 2020 and returned back to the pre-COVID level by February 2021," the Fed study's authors noted.
And the NBER's research shows that despite a sinking stock market — one that's hurting upper middle class workers nearing retirement in particular — it's a consistently reliable way to build wealth, and one that many people don't have access to. The COVID-19 pandemic's impact on the stock market has highlighted wealth disparities, with central banks creating hundreds of new billionaires in response to the crisis through asset holdings.
Given "that there are so few Black households at the top of the wealth distribution, faster growth in wealth at the top will lead to further increases in racial wealth inequality," the NBER researchers wrote.
Americans' investment portfolios have evolved over the years
White people netting a disproportionate amount of wealth from stock holdings hasn't always been the story. According to the NBER researchers, there was no difference between the accruing rate of capital gains for Black and white stockholders between 1950 and 1980. Since 1980, however, white stockholders have amassed 0.65% more per year in gains.
Among reasons for why stocks have become a better investment is that they do not involve the high transaction costs of real estate, and stock portfolios are much easier to diversify.
Between 1950 and 2019, the researchers said, housing and other non-financial assets accounted for a majority of Black American portfolios, compared to 41% of the average white person's. Corporate stock accounted for 7% of a Black person's portfolio during these years, compared to 18% of a white person's.
"These large price increases in equity markets have led to disproportionate capital gains for the wealthiest Americans, a group that is almost exclusively white," the researchers said.
During the COVID-19 period, the researchers noted, wealth concentration in the US reached its highest point since World War II, with the top 0.01% of households estimated to own 36% of the country's private wealth. According to one Oxfam report from May, a new billionaire was minted every 30 hours during the pandemic, while projecting that a million people will fall into extreme poverty every 33 hours in 2022.
The researchers concluded that policies designed to redistribute large stocks of wealth would lead to immediate reductions in racial wealth inequality, as opposed to other, more gradual structural measures that could take "hundreds of years" to play out. They said that both, however, are vital.
"Policies that redistribute stocks of wealth without addressing racial gaps in savings and capital gains have but a transient effect on the wealth gap," they said.