Wealth inequality & the PRS

The Week in Housing 10/05/24

This is Part III of a four part series, see Part I and Part II . A full bibliography for this piece can be found at the end of this Newsletter. As many of you will be aware, when I’m not on research sabbatical I am the Director of the Equality Studies M.Sc. in UCD. If you or anyone you know would like to find out more about the programme, an online information session will be held May 17th at 1pm.

Last time we looked at the relationship between the PRS and income inequality, a relatively understudied topic. This time, we are on much more familiar terrain. Wealth inequality has dominated how we think about housing and economic inequality for quite some time. This is perhaps unsurprising as the distribution of residential property is a key determinant of wealth inequality. Due to the increasing importance of real estate assets, and the sustained growth in prices in most advanced nations, housing wealth has become increasingly central to wealth distribution:

A distinguishing feature of the past half century is the unprecedented accumulation of wealth into residential property through a long wave of house price appreciation that was, for the first time, global in reach and synchronized across jurisdictions. This turned residential property into the largest capital asset in the investable economy, exceeding the combined value of equities, commercial property, agricultural land, forestry and all gold ever mined. Housing accounts for the majority of the twenty-first century rise in total private wealth, for the lion’s share of total return on aggregate wealth (Smith et al., 2022).

Housing wealth not only plays a key role in wealth inequality, it has also come to play a much more central role in the wider political economy, as ‘residential real estate is one of the defining characteristics of the current regime in accumulation’ (Smith et al., 2022). This is evident both in the proportion of wealth held in the form of real estate assets, but also in the role of residential real estate assets in fueling demand and economic growth. Indeed, it has been argued that in many countries houses ‘often appreciate by far more in a given year than it is possible for middle-class wage earners to save from wages’ (Adkins et al., 2021), i.e. ‘homes earn more than jobs’ (Ryan-Collins & Murray, 2023).

In general, societies with lower levels of homeownership have higher levels of wealth inequality, as for many households housing will be the only form of wealth they hold. Thus, renters typically have very low levels of wealth. Over recent decades, unsurprisingly, the decline of homeownership combined with the growth of house prices has played a decisive role in increasing wealth inequality.

For example, Smith et al.'s (2022) analysis of Australia, the US and the UK between 2011 and 2017, shows that as homeownership has declined in these typical ‘homeowner societies’, wealth inequality has increased overall, and housing wealth has become more concentrated among wealthier and older households. Today, the top 10% of wealthy households in the UK, Australia and the US, hold 39%, 45% and 53%, respectively, of all housing equity. Similarly in Ireland, the wealth divide between homeowners and renters is stark. 97% of Ireland’s wealth is held by homeowners, while just 3% is held by rents (despite the fact that renters account for 20% of households). The average net wealth of homeowners in 2020 was €303,900, while for renters the figure was just €5,300 (Moreno, 2024).

Housing wealth inequality is not just about homeowners and renters, however. Adkins et al.'s (2021) research highlights the concentration of housing wealth among landlords, who are both disproportionately high-income households as well as owners of multiple residential properties (on the Dutch case, see Hochstenbach, 2022).

What should not be forgotten in all this is that housing wealth is linked to a much wider variety of forms of inequality. As Zavisca & Gerber (2016:350) note:

Like other sources of wealth, housing could influence life chances by facilitating consumption smoothing and intergenerational transfers. Homeownership could amplify the stratifying effects of wealth that have been identified in domains such as education, living standards, and happiness.

The absence of wealth, in particular, exposes households to greater future risk and uncertainty, and undermines their ability to respond to adverse events. Higher levels of wealth inequality thus have impacts for pension and welfare systems. The fact that there are growing numbers of households who have no wealth at all because they cannot purchase a house, is also likely to have political impacts, as mass homeownership has been a key part of the ‘property owning democracies’ (or ‘ownership societies’, if you prefer Bush senior’s term) that were the aim of neoliberals in the 1990s and early 2000s.

Next week, we’ll finish this series with a look at unequal experiences of housing and home, i.e. the non-economic aspect of housing inequality.

Events & News

I’ll be presenting a paper entitled A vision for Ireland’s Private Rental Sector as part of the Simon Talks seminar series, May 27th at 10am. Register for the Webinar here.

What I’m reading

Threshold’s latest impact report is now available, as is a new ESRI report on the little known area of land prices. Also, a reminder that the Housing Agency’s latest survey on residential satisfaction in Ireland is now published.

Bibliography

Adkins, L., Cooper, M., & Konings, M. (2021). Class in the 21st century: Asset inflation and the new logic of inequality. Environment and Planning A: Economy and Space, 53(3), 548–572.

Arundel, R. (2017). Equity inequity: Housing wealth inequality, inter and intra-generational divergence, and the rise of private landlordism. Housing, Theory and Society, 34(2), 176–200.

Brenner, R. (2006). The Economics of Global Turbulence. Verso.

Hochstenbach, C. (2022). Landlord elites on the Dutch housing market: Private landlordism, class, and social inequality. Economic Geography, 98(4), 327–354.

Kholodilin, K. A., & Kohl, S. (2023). Rent price control–yet another great equalizer of economic inequalities? Evidence from a century of historical data. Journal of European Social Policy, 33(2), 169–184.

Moreno, M. (2024). Inequality and wealth distribution  among Irish households: Introducing new Distributional  Wealth Accounts. Central Bank of Ireland.

Ryan-Collins, J., & Murray, C. (2023). When homes earn more than jobs: The rentierization of the Australian housing market. Housing Studies, 38(10), 1888–1917.

Smith, S. J., Clark, W. A., Ong ViforJ, R., Wood, G. A., Lisowski, W., & Truong, N. K. (2022). Housing and economic inequality in the long run: The retreat of owner occupation. Economy and Society, 51(2), 161–186.

Zavisca, J. R., & Gerber, T. P. (2016). The socioeconomic, demographic, and political effects of housing in comparative perspective. Annual Review of Sociology, 42, 347–367.