The Arbor Outlook: Western Wealth, Property Records and Aretha

“This was the land that he worked by hand… This was the dream of an upright man.”
— from “The House That Jack Built” as recorded by Aretha Franklin

Property ownership is at the heart of the American dream. Granted, real estate is a fickle friend. Who can forget the folks that suffered terrible real estate losses and commensurate declines in personal wealth during the Great Recession?

But a book titled “The Mystery of Capital” by Hernando de Soto (not the Spanish explorer buried in the Mississippi River) postulates that property ownership is more than an investment vehicle, it is the foundation of wealth creation in the West.

Massive economic growth, asserts de Soto, cannot be achieved without personal property (most often housing) that is documented by government records. Sounds simplistic, right? I mean, whose house and/or property aren’t listed on a county website?

It’s hard to imagine, but a significant part of the world lives in undocumented housing. In developing nations, land or property ownership often cannot be easily ascertained and frequently no official government records exist at all. Even when property records exist, many are not updated or accurate enough to be functionally useful. Squatters sit on properties that are listed as owned by others. This situation permeates Central and Latin America, Africa and large swathes of Southeast Asia. De Soto contends that this is the primary hurdle to wealth building, as well as the essential reason the West is wealthier than “the rest.”

When you tie someone to an address, someone who owns the property or legally resides there, they can engage on a much deeper economic level than those who have no legal residence. And it’s not because the property-less people of the world are lazy; it’s that property gives folks the ability to generate additional capital.

“The poor inhabitants of these nations… do have things, but they lack the process to represent their property and create capital,” says de Soto. “They have houses but not titles; crops but not deeds; businesses but not statutes of incorporation…”

Documented property and home ownership allows us to borrow money, to start businesses, and to inject capital into the economy. Without property or home ownership or the capacity to procure a title to a property we own, our economy would be severely impacted. The red tape and taxes and fees (who hasn’t recoiled at the word “doc stamps” when purchasing a home) associated with property and home ownership are significant, but we are offered tremendous opportunities for wealth accumulation through official documentation.

As de Soto said, “This is the mystery of capital … Westerners, by representing assets with titles, are able to see and draw out capital from them.” A person’s home is his castle, but it is also his capital.

Margaret R. McDowell, ChFC®, AIF®, author of the syndicated economic column “Arbor Outlook,” is the founder of Arbor Wealth Management, LLC, (850.608.6121 – www.arborwealth.net), a “fee-only” registered investment advisory firm located near Sandestin.