In Part 1 of this article we discussed the ongoing and systemic trend of ever higher real estate prices versus relatively declining incomes and purchasing power that is contributing to the constant deterioration of the middle class.  We also examined the occurrence of massive transfers of wealth from the middle class to the wealth class during times of economic crisis.  

These two powerful forces are leading to the evaporation of our “income” based economy to one that is predominantly “asset” based.

But what does that really mean?  How will that transformation be manifested in our daily lives?

Let’s start by comparing the differences between income based and asset based markets.

The key difference between the two concepts is how individuals and businesses generate and manage wealth. 

In an income economy:

• Individuals and businesses primarily generate wealth through the regular flow of income or earnings.  
• The primary focus is on earning money through activities like employment, self-employment, running a business, or providing services.
• People in an income economy rely on their wages, salaries, profits, and other sources of income to cover their expenses and build their wealth over time.
• It’s characterized by a focus on earning and spending money as a means of maintaining one’s standard of living and achieving financial goals.

In an asset economy:

• Individuals and businesses generate wealth by acquiring and managing assets (such as real estate, stocks, bonds) that appreciate in value and/or generate income over time.
• The primary focus is on accumulating and growing assets, which can be leveraged to generate passive income or capital appreciation.
• People in an asset economy prioritize investments and asset management strategies, aiming to build a portfolio of assets that can provide long-term financial security and wealth growth.

In Canada before the two World Wars only a small portion of the population owned property.  The great majority were renters or worked the land for their accommodation and sustenance.  It was only after WW2 that we saw a significant rise in home ownership rates in several Western countries. This trend was influenced by a combination of economic prosperity (more jobs), government programs (more assistance), suburbanization (more affordability) and mortgage market development.

This has allowed Canada to have a larger and more broadly based property owning middle class compared to the rest of the world.  

But that is changing fast and not for the better.

Manufacturing jobs are disappearing to lower wage countries.  Service jobs offer less pay and less security.  There is also a sharp rise in “gig” work and “independent contract” work is replacing what was historically seen as full-time careers.  These savings in labour costs translates into greater profits for the wealthy.

Government programs promoting home ownership are practically extinct.  Suburbanization is reverting back to urbanization.

Asset (home) prices are rising rapidly and show no signs of slowing down.

All of these aforementioned forces are combining to make it more and more difficult to own your own home.  Higher interest rates and inflation levels for everyday staples are only accelerating the process.

Rising inequality is the defining feature of our age. With the lion’s share of wealth growth going to the top – for a growing percentage of society – a middle-class existence is or will shortly be out of reach.