The week in housing 16/04/21

Wealth inequality

One of the big questions for housing researchers in recent years has been the implications of the 'generation rent phenomenon'. When it comes to the impact on inequality, the international literature has often focused on wealth inequality. If we look at research from some of the biggest names, such as Richard Ronald, Ray Forrest, or Rowan Arundel, we see that they tend to focus on what the latter calls 'equity inequity', i.e. how the exclusion of younger households from homeownership will lead to greater wealth inequality. This has not been much of a feature of the debate here in Ireland, and this has a lot to do with the absence of data. The Household Finance and Consumption Survey is the main source of data on household wealth, and until recently we only had the 2013 version of the survey to go on and therefore could not do much to assess changes in wealth inequality during the period associated with the decline of homeownership (since around 2003).

This lacuna, as academics like to call these things, is happily addressed by new HFCS data which was collected in 2018. This week saw the publication of Horan et al.'s Household Wealth Inequality and Resilience: Evidence from the Household Finance and Consumption Survey, in the Spring addition of the Economic and Social Review. So, what has been the impact of housing dynamics on wealth inequality? The paper tells two stories, with housing at the centre of both of them.

First, wealth inequality has declined between 2013 and 2018; the Gini coefficient for net wealth fell from 0.75 to 0.67. How can this be possible when we associate this period with declining homeownership, which should mean more inequality not less? The answer is negative equity - many households moved from the bottom of the distribution (low or negative wealth) to the middle as their housing assets moved from negative to positive equity.

Second, looking at a longer time period (1987 to 2018), wealth inequality has indeed increased. The share of total wealth owned by the top 10 per cent of households grew from 42 to 50%. Meanwhile, the share of aggregate net wealth in the bottom 50 per cent of households fell from 12.2 per cent in 1987 to 6.8 per cent in 2018.

The authors point to three causes. The first has to do with the richest households and financial assets, so it is not really a housing story. But two important factors are that households in the middle of the income distribution are increasingly leveraged, i.e. they are borrowing more to access home ownership, and this obviously effects their net wealth, and homeownership has declined.

There's also some interesting analysis of intergenerational wealth transfers and their role in supporting access to homeowners:

"[W]e find that amongst households who bought a home in the five years prior to survey – i.e. between 2013 and 2018 – 36 per cent received an inheritance in the last five years. For those that did not purchase a home and remained renters, the figure is just 12 per cent. The difference is particularly large amongst younger age groups: for recent buyers under the age of 40, 47 per cent received an inheritance, compared to a figure of 13 per cent for renters under 40."

The paper concludes that: 'The picture that emerges from the analysis of all three cross-sections is the centrality of housing for understanding changing wealth patterns'.

What I’m reading

This new blog post by Kim McKee gives a snap shot of how research on the PRS has developed over the last few years: https://www.housing-studies-association.org/articles/279-changing-fortunes-of-the-uk-prs-implications-for-housing-research-education

Events

One of the biggest events in the academic housing calendar is the Conference of Irish Geographers. This year it is taking place May 18th to 21st. Registration is now open: https://www.conferenceofirishgeographers.ie/