The man who collects houses

I’d never heard of Ken Griffin before a week in which the hedge fund billionaire bought the most expensive home ever sold in the United States and then snapped up (as you do) what is thought to be the priciest home sold in Britain for a decade.

I use the words ‘houses’ and ‘home’ in a loose sense, of course. Because we are talking about penthouses, apartments and condos too. And because, despite spending $238m on a four-storey penthouse in a new skyscraper in New York and £95m on a London house near Buckingham Palace, it’s hard to see how he will spend much time living in either of them.

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Griffin’s Citadel hedge fund is actually based in Chicago, where he already has two more homes. The most expensive ever sold in the city, a $59m four-storey penthouse, offers a place to crash after day at the office. Fitting it out could cost another $25m but if he needs somewhere in the meantime he also owns a whole floor of the Waldorf Astoria plus a two-storey penthouse in another skyscraper.

For weekends or holidays he can fly down to Florida, the state where he was born and has acquired a $230m portfolio of land and property in Palm Beach near President Trump’s Mar-a-Lago estate. One property (which cost $15m) will apparently be used as a guest house while some of the four others could be demolished to make way for a gargantuan beach house. That’s almost forgetting the $60m penthouse in Miami that he seemingly never moved into and has now put back on the market.

If he fancies a change of scene, he can nip over to Hawaii, where he bought one property for $11m in 2009 only to buy a second for $17m three years later.

I’m labouring the point here but it’s worth it on a few different levels, most obviously for what it reveals about the astonishing lives of the ultra-rich but also for what this extreme case says about our attitudes to housing and property and about what has happened since the financial crisis.

Ken Griffin appears to be collecting houses in much the same way that he collects art. In 2016 he spent $500m on two paintings by Willem de Kooning and Jackson Pollock (paying, naturally enough, record prices for both) to go with his $80m Jasper Johns and a Cézanne and a Monet.

The motivations for buying the most expensive homes and the most expensive paintings look very similar and they go beyond mere aesthetics or lifestyle.

Just as you can only hang a painting on one of your many walls (or perhaps keep it in a bank vault) you can only ever live in one home and sleep in one bedroom at a time.

But these purchases are not about utility or convenience, or even about investment. They are about status and signalling to the rest of the world that you have more of it than anyone else.

You can achieve the same thing by giving your money away, as in Griffin’s $150m donation to Harvard, his old college, in 2014, or his $125m gift to the University of Chicago provided everyone knows you’ve done it (and in Chicago’s case name your economics department after him)..

We are in a world of conspicuous consumption and the art and the homes are positional goods whose value derives from their scarcity and their capacity for signalling that status while the philanthropy does the same while also signalling moral worth. For someone as rich as Ken Griffin that ‘most expensive ever’ tag is not necessarily a cue to negotiate the price down and could even be a reason to pay even more.

His new London house in Carlton Gardens did apparently come at a substantial discount to the original inflated asking price but it comes with the additional cachet of an address in St James’s down the street from the British foreign secretary, a wartime association with General de Gaulle and previous use by MI6 to impress new recruits. Thanks to one of his former neighbours, he will also have received a handy Brexit bonus from the pound’s fall against the dollar.

But beyond the world of the ultra-rich what does this say about housing and its relationship to the rest of the economy?

Tropes about buy to leave can be overdone but Griffin’s property empire goes well beyond that into buy to collect.

In the case of the London house, you could argue that it does not have a huge direct impact on the housing of everyone else since it was not previously a home.

In New York there has already been a significant direct impact. The new 79-storey skyscraper at 220 Central Park South where he will own the top four floors is still under construction.

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The site was previously occupied by a 20-storey block of rent-stabilised apartments. Under New York law, landlords have the right to remove tenants from buildings they plan to demolish provided they can show proof of financing. Sure enough, all the tenants were evicted in 2006.

But what about the indirect effects? We are used to the fact that the price of housing is increasingly determined as much by its value as an investment as its value as a place to live. Griffin could be putting his money where his mouth was when he reportedly told a conference last year that a growing population in the US would ‘underpin house prices for years to come’.

Positional value may be more intangible and much harder to quantify but if housing is a positional good then economic theory (see here for more) has some important implications.

First, our desire to signal our status via our home (not all of us as conspicuously as Ken Griffin obviously but consider the combined effect of millions of smaller individual decisions) helps to drive our collective over-consumption of housing and to ensure that house prices continue to rise faster than earnings, with negative effects on the economy as a whole. Since positional value depends on how we perceive ourselves as doing relative to others this effect has the potential to grow in importance over time.

Second, the positive impacts of home ownership on the wellbeing of home owners may not last if other owners are doing better – it will become harder over time to signal status and merely owning a home will not be enough.

Third, those positive impacts will be matched by negative ones on the wellbeing of non-home owners.

One recent study used panel data to show that as home ownership normalises among people’s social peers ‘the subjective well-being (in terms of mental health and life satisfaction) of owners increases, while the subjective well-being of renters decreases’. It follows that ‘some of the apparent benefits of home-ownership may in fact depend on the stigmatisation of others’.

That in turn has important implications for housing policy. Consider, for example, the green paper’s determination to tackle the stigma faced by tenants at the same time as it presents social housing as a ‘springboard’ to ownership. Think of the way the gap between social and market rents is routinely framed as ‘subsidy’ or social housing on valuable sites is seen as an unrealised asset. Or reflect on the factors that lie behind multiple controversies about the regeneration of low-income estates and communities.

In the US, Griffin’s record purchase has added fuel to the debate about inequality and the taxation of the super-rich but it also makes you wonder about the nature of the economy that has developed since the financial crisis.

Back in 2008, the TV cameras were on standby outside Citadel’s offices because journalists expected that Ken Griffin’s creation would become the next high-profile casualty of the crash.

A decade later, after years of record low interest rates and quantitative easing that inflated the prices of all assets including property, Ken Griffin is collecting housing in the midst of multiple global housing crises.

And then consider that, despite a fortune estimated at $9bn, he is only the fifth richest hedge fund boss and only makes number 172 on the Forbes list of the world’s billionaires.

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