Is $1 Million Still Enough? The Shrinking Buying Power of Wealth

Is $1 Million Still Enough? The Shrinking Buying Power of Wealth

For decades, $1 million was considered a significant milestone—enough to secure financial independence, a comfortable home, and a solid future. But in 2025, does $1 million still mean what it used to? Adjusting for inflation, the purchasing power of $1 million in 1980 is now closer to $3.7 million today. That shift has profound implications for homeownership and financial security.

Understanding Inflation and Scarcity

Inflation is the silent force that erodes purchasing power over time. In Basic Economics, Thomas Sowell explains that money itself holds no intrinsic value; its worth is determined by what it can buy. When more dollars chase the same amount of goods, prices rise. That’s why $1 million today doesn’t stretch as far as it did in past generations. Scarcity plays a key role here—the availability of resources, including homes, affects price levels, and as demand grows while supply remains constrained, costs inevitably rise.

Trade-Offs and Opportunity Cost: The Real Cost of Homeownership

Even for households with $1 million in assets, today’s real estate prices make homeownership a challenging decision. The trade-offs have become starker: should a family put down 20% on a $1.5 million home, or invest in assets that generate better returns? The opportunity cost—the value of the next-best alternative—suggests that tying up capital in an expensive home might not be the best move. Instead, renting or investing elsewhere could provide greater financial flexibility and growth.

Incentives and the Erosion of Affordability

Financial incentives shape consumer behavior. Historically, tax benefits, low interest rates, and wage growth made homeownership more attractive. However, in today's environment of high property taxes, rising maintenance costs, and mortgage rates around 6-7%, the incentives have changed. More people are questioning whether homeownership is worth the financial strain, especially when renting offers more liquidity and lower upfront costs.

Competition, Supply, and the Housing Squeeze

The housing market is a prime example of supply and demand in action. Urban centers and desirable school districts see intense competition for limited housing, driving prices sky-high. Meanwhile, restrictive zoning laws and slow new construction exacerbate the issue. As Sowell points out, price controls and government interventions often create unintended consequences—such as housing shortages—rather than making homes more affordable.

The Bottom Line: $3M Is the New $1M

With rising costs across all major life expenses—housing, healthcare, education—the amount needed for true financial independence has ballooned. In today’s economy, $3 million is the new $1 million, especially in high-cost areas. That means even disciplined savers with $1 million in assets may still struggle to buy a home without making significant trade-offs. The old benchmarks of financial success need to be recalibrated for modern realities.