As Rich Get Richer, Middle-Income Take on More Housing Debt

The phrase “keeping up with the Joneses” refers to the notion of people trying to match their neighbors’ acquisitions and other signs of social standing, lest they feel inferior.

Now a study suggests that this phenomenon may be real.

In a recently published paper, Jeffrey Thompson, principal economist for the Federal Reserve Board of Governors, said that average-income or moderately affluent people take on more housing debt when they have very rich neighbors.

In areas that are home to the very wealthy, “middle and upper-middle income households take on more housing-related debt,” which leaves them with higher debt payments than others at their income levels, Thompson wrote in the report published on the Federal Reserve's website.

Similarly, as incomes of the super-wealthy rise, the greatest impact is upon those a bit further down the income scale -- the moderately well-off, who then take on more debt and higher payment obligations, Thompson found.

The very wealthy are those at the 99th percentile of income, which averages about $341,000 a year.

The moderately affluent, at the 95th percentile, have average incomes less than half that, $151,000. While even that may sound like a lot, if a computer programmer earning the average for that position of $85,000 per year and a nurse with average income of just over $70,000 form a household, they are at the 95th percentile, according to income figures from the federal Bureau of Labor Statistics.

So are people who aren’t rich really trying to keep up with the Joneses? Or is something else at play? Thompson doesn’t make a definitive conclusion.

“It could be that rising top incomes are fueling increased housing consumption at the top, which in turn inspires debt-financed housing consumption further down the [income] distribution,” Thompson writes.

“Alternatively (or also), rising disposable income at the top of the distribution could be helping to bid up the price of land and housing in affluent neighborhoods,” he writes.