The Real Estate Trap of the AI Age
In the United States, the cost of keeping a roof over your head has been climbing for decades. In 1970, the median home cost about 2.5 times the median household income; by 2022, it was 5.6 times — the highest ratio since records began in the 1970s. That shift didn’t happen because homes became better built or more luxurious—it happened because of a fundamental change in how our economy distributes its rewards.
Since the 1970s, productivity has continued to grow, but the paychecks of most workers have barely budged. The gap between what the economy produces and what workers take home has widened, leaving corporations and wealthy individuals with enormous surpluses of cash. Historically, some of that money might have gone into building new factories or expanding payrolls. But in today’s world—especially with the rise of artificial intelligence—much of it is being funneled into real estate.
AI’s promise of higher efficiency means companies can expand output without adding much labor. The resulting profits have to go somewhere, and increasingly, they’re going into buying up housing and commercial property. That capital flow drives up property values, pushes rents higher, and makes the cost-of-living crisis even worse for the people whose wages are already standing still.
The Break in the System: Stagnant Wages Since the 1970s
The postwar economic boom from 1945 to 1973 was built on a relatively fair bargain: as the economy grew, wages grew too. Union membership was high, manufacturing jobs were plentiful, and the typical American worker saw their paycheck rise alongside their productivity.
That pattern broke in the mid-1970s. A combination of global and domestic shocks—oil crises, rising international competition, the end of the Bretton Woods system—shifted the balance of economic power. Union membership fell from around 24% of the workforce in the mid-1970s to just over 10% today. Deregulation, outsourcing, and technological change accelerated the separation between productivity and wages.
From 1973 to 2019, productivity in the nonfarm business sector rose about 72%, but the inflation-adjusted hourly compensation of a typical worker grew only about 12%. Median real annual earnings for men are slightly lower today than they were in 1973, while women’s gains, which rose in the 1980s and 1990s, have largely leveled off. The result: a growing share of national income goes to capital rather than labor.
Surplus Profits and the Search for Assets
When profits outpace wages, the wealthy have to decide where to park their extra capital. In a dynamic economy, some of it might go toward productive investment—building new facilities, developing new products, hiring more people. But starting in the late 20th century, the opportunities for such investments shrank. Global competition reduced profit margins in manufacturing. Mature industries offered limited growth potential.
This “capital glut” left trillions of dollars seeking safe, high-return homes. Stock buybacks became one favored option—S&P 500 companies spent a record $922.7 billion on them in 2022 alone—but real estate emerged as another, even more tangible choice.
Real Estate as the Wealth Concentration Engine
Real estate offers three qualities irresistible to capital: it’s tangible, it appreciates over time, and it comes with favorable tax treatment. In 1980, the total value of U.S. residential real estate was around $5 trillion. By the end of 2022, it had reached roughly $45 trillion — nearly nine times larger.
Institutional investors—private equity firms, pension funds, real estate investment trusts (REITs)—increasingly treat homes as financial assets. After the 2008 housing crash, firms like Blackstone scooped up thousands of foreclosed homes, converting them to rentals. In many cities, they became the largest single landlords. This turned housing into a vehicle for steady rent extraction from working households.
Tax policies like the mortgage interest deduction, capital gains exclusions on home sales, and 1031 “like-kind” exchanges further encourage using property as a wealth storage tool. Meanwhile, zoning restrictions and underinvestment in affordable housing keep supply tight, magnifying the upward pressure on prices.
How Rising Asset Prices Translate into Higher Costs of Living
When investors bid up the price of housing, the effects ripple beyond the housing market. The median asking rent in the U.S. rose about 30% between 2019 and 2023, far outpacing wage growth. Homeownership rates for adults under 35 peaked at 43% in 2005 but had fallen to about 38.5% by mid-2023, leaving more young workers renting for longer—and paying more each year for the privilege.
Housing costs also drive up other expenses. Businesses facing higher commercial rents pass those costs along in the form of higher prices for goods and services. Workers who must spend 40% or more of their income on housing have less to spend elsewhere, often relying on credit cards or personal loans to make ends meet.
Inequality’s Feedback Loop
The benefits of rising property values flow to those who already own property—disproportionately older, wealthier, and whiter households. The top 10% of U.S. households now control roughly 67–70% of all wealth, and housing equity is a key part of that.
Those without property are left on the wrong side of a widening wealth gap. Even if they save diligently, rising home prices outpace their ability to enter the market. The racial homeownership gap, which was narrowed somewhat by the civil rights gains of the mid-20th century, has remained stubbornly wide in recent decades. For many families, the inability to buy a home means missing out on the single most important wealth-building opportunity in America.
The Next Wave: AI as a Profit Engine and Housing Market Fuel
Artificial intelligence threatens to intensify these dynamics. By automating not just repetitive manual tasks but also white-collar and cognitive work, AI allows companies to produce more with fewer workers. That means higher profits—without the corresponding payroll growth that would spread those gains across the workforce.
Those profits will accrue mainly to the owners of AI infrastructure, algorithms, and intellectual property. But there are limits to how much can be reinvested into new production capacity, especially when consumer demand is constrained by stagnant wages. As with previous surplus capital, much of the windfall will flow into assets—especially real estate—where it can earn stable, long-term returns.
In other words, the AI revolution could supercharge the existing pattern: fewer people earning wage income sufficient to buy homes, more investor money competing for a limited housing supply, and steeper costs for everyone else. Unless this cycle is interrupted, AI won’t just reshape the labor market—it will deepen the housing crisis and the cost-of-living squeeze.
Policy Paths Out of the Spiral
Addressing this problem requires acting on both sides of the equation: labor income and asset concentration.
On the wage side, we need stronger collective bargaining rights, minimum wage laws tied to productivity growth, and robust workforce development programs to help displaced workers transition into new roles—especially in sectors AI is less likely to disrupt.
On the asset side, we can reduce speculative pressure on housing by imposing progressive property taxes, limiting bulk purchases of residential property by institutional investors, and expanding the supply of non-market housing through public investment.
For AI-specific policy, one promising idea is to create mechanisms for workers to share in the gains from AI-driven productivity—through equity stakes, profit-sharing mandates, or sovereign wealth funds seeded with AI-era profits that invest directly in affordable housing and public infrastructure.
Conclusion: Choosing the Direction of the AI Era
The wage-productivity split that began in the 1970s set in motion a chain of effects: profits outpacing wages, capital seeking returns in real estate, and housing costs spiraling beyond the reach of many workers. AI now threatens to accelerate that cycle, delivering even greater profits to capital owners while shrinking the share of income that comes from wages.
If we allow those profits to flow unchecked into real estate, the housing crisis will deepen, the cost of living will rise faster, and inequality will harden into something close to a permanent caste system. But it doesn’t have to be this way.
With the right policies, we can ensure that the AI era becomes not another chapter in wealth concentration, but the start of a new bargain—one where productivity gains translate into affordable housing, fair wages, and shared prosperity. The question is whether we act in time.
