AI Wealth Truth (41): Why Wage Growth Almost Always Lags Housing Prices

I. Have you felt this before? You work hard, and your wage has gone up a lot. But home prices rise even faster, and you are farther from buying a home than before. This is not an illusion. It is an internal mechanism of the economy.

II. Let us understand why this happens:

III. What constrains wage growth? Wages are ultimately constrained by labor productivity. The value you create determines what an employer is willing to pay. Productivity improves gradually, by a few percentage points per year. Wage growth has a ceiling.

IV. What drives housing prices? Home prices are driven by credit supply. When mortgage rates are low and loans are easy to get, more people can borrow more money to buy homes. Prices get pushed up. Credit can expand quickly out of thin air.

V. These are two completely different growth logics:

VI. Wage growth is "real growth". It requires real productivity progress. 2% to 4% per year is already good. It depends on your effort, skills, and industry.

VII. Home-price growth is a "monetary phenomenon". When banks extend more loans, more money chases a limited number of homes. Prices rise. It depends on credit policy, interest rates, and banks' risk appetite.

VIII. The key point is: banks can "create" money.

IX. This is a feature of the modern financial system. When you apply for a mortgage, the bank is not lending you someone else's deposits. The bank creates new money by "bookkeeping" in your account. This is credit creation under a fractional-reserve system. When the bank says "We lend you 2,000,000", that 2,000,000 appears from nothing.

X. This means: in theory, mortgage credit can expand without limit (only constrained by central bank policy). Wages are constrained by productivity and cannot expand without limit. When credit expansion is faster than productivity growth, housing prices will outrun wages.

XI. So what happened over the past 20 years?

XII. China's M2 (broad money supply) has grown by more than 10x. GDP has grown by about 5x. Median wages may have grown by only 3 to 4x. Money growth > GDP growth > wage growth. Where did the extra money go? Mostly into asset markets, especially real estate.

XIII. This explains the strange phenomenon: your wage rose from 3,000 to 10,000, more than 3x, and you feel you have improved a lot. Home prices rose from 500,000 to 3,000,000, 6x. You improved, but relative to home prices, you fell behind.

XIV. What is even more frightening is compounding:

XV. Suppose wages grow 5% per year while home prices grow 10% per year. After 10 years, wages are 1.6x. Home prices are 2.6x. After 20 years, wages are 2.6x. Home prices are 6.7x. The gap expands exponentially.

XVI. This is structural, not something personal effort can solve. You can be more hardworking, smarter, and earn more than your peers. But the growth rate of the overall wage pool is limited. You are fighting systemic forces.

XVII. In the AI era, this gap may widen further.

XVIII. AI can raise productivity, but the gains flow mainly to capital. Wage growth may slow further. Capital returns (including housing) may continue to outperform. The gap between income and assets gets larger.

XIX. AI may also lead to looser monetary policy. If AI triggers a wave of unemployment, governments may print money and distribute it. More money flows in, asset prices rise further. Your wage is depreciating while assets are appreciating.

XX. How do you respond?

XXI. 1. Convert income into assets early. Wages cannot catch up with assets. The only way out is to own assets. Even if it is only a little, start accumulating. Not owning assets means standing on the slower side of the race.

XXII. 2. Do not assume "work a bit harder and you can buy a home". If you cannot afford it today, you may be even less able to afford it after another 10 years. Because home prices may grow faster than your wage. Either find a way to buy now, or choose a different goal.

XXIII. 3. Consider other cities and regions. Core cities often see the most extreme home prices. But not every place looks like that. Choosing a different arena may be more realistic.

XXIV. 4. Understand the system and stop blaming yourself. Wages failing to catch housing prices is not your fault. You are fighting a system designed to favor asset holders. Understanding this can reduce pointless anxiety.

XXV. Wages are labor income, constrained by productivity. Home prices are asset prices, driven by credit expansion. Their growth logics are fundamentally different. Expecting wages to catch housing prices is misunderstanding the rules of the game. In the AI era, these rules will not become more friendly to labor. If you want to share the gains, you need to stand on the asset side. No matter how little, start.