US cities are flourishing for the first time in half a century.
There are legitimate demographic and cultural reasons for urban renewal.
Crime, which sparked the flight of the middle class from urban areas in the 1960s and 1970s, has come down.
Young people do not want to live in suburbs nor do retiring and downsizing Baby Boomers.
In addition, legal immigration has been growing, creating new demand for housing.
But in an economic context, there is more to this new urbanisation wave than the return of the middle class, young upwardly mobile professionals and immigrants.
In fact, they increasingly find themselves priced out of America’s largest cities.
Instead, as has happened in London before, such cities are becoming playgrounds for the super-rich – and not only native ones. Foreigners are buying up high-end property in US cities – and developers cater ever more directly to foreign buyers and investors.
Multimillion-dollar properties are often bought for cash and deals are executed through anonymous offshore shell companies.
Even among known owners, there are plenty of crooks and shady characters.
Meanwhile, no one knows how those who prefer to remain hidden made their money.
No one cares, either.
As long as the money is not related to Islamic terrorism, the US government turns a blind eye.
But this massive international money laundering operation comes with considerable risks attached.
New York City started this trend under former mayor Mike Bloomberg.
Before he left office in 2013, he famously declared that he would be happy to see every one of his fellow billionaires move to New York.
Money laundering
Two years ago, New York magazine published an exposé, calling multimillion-dollar digs “stash pads” – after apartments that drug pushers rent to hold their merchandise.
A year ago, a series of articles appeared in the New York Times, detailing how hard it was to identify who exactly the super-rich buying New York City apartments were.
The few that the Times dug out made a nice rogue’s gallery, with misdeeds ranging from corruption and malfeasance to tax evasion and suspected links to organised crime.
New York City remains the most outrageous example of America’s foray into money laundering.
The southern end of Central Park has been turned into a veritable theme park for the global “1 percent”, with apartments going for as much as $100 million (R1.6 billion).
According to the Times, $8bn is spent a year on apartments in the city costing $5m or more – and this figure is rising.
The selling prices of the average Manhattan apartment has now reached $1.1m, a record high.
It should be noted that lending practices are now considerably tighter and restrictions on mortgages remain in place.
But New York is merely the tip of an iceberg. Miami, Los Angeles, San Francisco, Houston and, to a lesser extent, Washington, Chicago and Boston are not very far behind.
Miami has been called Ground Zero of climate change.
Large portions of South Florida may end up under water within the next 15 years, yet, the city is in the middle of a construction boom, much of it along the shore.
Russian, Chinese and Latin American fat cats are buying condos as rapidly as they are built – often paying cash.
Prices are starting to creep up towards New York levels.
It would seem that it’s a win-win situation for the US.
Its economy is running perennial current account deficits, sending about $400bn abroad as Americans buy more goods and services than they produce.
However, the dollar is rising, thanks to strong capital inflows.
Even as Swiss banks lose their appeal to the publicity-shy rich, the US steps in to welcome their cash.
Unlike banks, which merely take cash, foreign investment in US real estate offers additional economic benefits to the country.
Construction employment rose 20 percent since the low point of the 2008/9 recession.
Along with professional and business services, it has been a driving force behind job creation in recent years, having added nearly 1 million well-paid jobs.
Meanwhile, downtown Miami is filled with financial institutions and companies providing services to the international super-rich. They manage their money and arrange residency permits and a path to citizenship that is far smoother than anything Obama’s Dreamers are likely to get.
They also help their kids to get into prestigious US colleges and universities, set up medical treatment if needed and lease boats and planes on their behalf. This means even more money flowing into the US economy, along with lots of jobs and tax revenues.
America’s businesses
As to the damage these kleptocrats and criminals cause their native countries, it is not America’s concern.
Savour the irony: The US Treasury goes hard after Americans doing shady things with their money abroad, but it welcomes other countries’ nationals doing the same thing in the US itself.
But now, with the emergence of a sizeable international class of “1 percenters” and increased flows of untraceable funds, America is emerging as a safe haven for the world’s super-rich and their money.
But there are plenty of problems looming.
Regional property bubbles are being inflated in many parts of the US, even as home prices on average remain stable – and some regions are still depressed.
New York is a prime candidate for a huge implosion.
The period of free liquidity is coming to an end and the Federal Reserve has started to raise interest rates.
A number of speculative bubbles that appeared when money was plentiful have already popped, including the oil bubble and the US junk bond bubble.
It is only a matter of time before disaster strikes overbuilt American urban centres, hitting developers and their lenders and burying ordinary people straining to pay their mortgages in overpriced markets.
Alexei Bayer is the eastern Europe editor of The Globalist. This article is published with permission from The Globalist (@theglobalist).