14 Housing and Personal Wealth in a Global Context

Abstract

Housing is the single most important component of personal wealth in most countries. The special characteristics of housing markets are therefore key to understanding personal portfolios, saving, the household distribution of wealth, and the monetary transmission mechanism. This paper discusses how housing markets and institutions differ across countries, paying particular attention to the UK and the EU, but extending its reach as well to other OECD countries such as Japan and emerging market countries such as South Africa. It analyzes how those differences help to create contrasts in the impact on consumption of housing as a component of personal wealth. The impacts of rates of home ownership, credit market characteristics, interest rates, and macroeconomic conditions are studied. Implications for monetary, fiscal, and other policies are discussed.

Rethinking the Risks of Home Ownership

“…['Housing investor' whose home has tripled in value over 20 years] Whether by accident or design, housing is the single most important component of personal wealth for the majority of 'Banking on housing' (Boh) mortgagors (98/150), as it is for their counterparts in most other countries (Muellbauer, 2006), especially in the English-speaking world (Smith, 2006). ['Housing investor' whose home has tripled in value over 20 years] Whether by accident or design, housing is the single most important component of personal wealth for the majority of 'Banking on housing' (Boh) mortgagors (98/150), as it is for their counterparts in most other countries (Muellbauer, 2006), especially in the English-speaking world (Smith, 2006).…”

“…Such contexts are shaped by an 'ethopolitics' (a style of governance) that prioritises home ownership (Flint, 2003;Smith, 2008), a sustained if volatile history of house price appreciation which has turned housing into a major store of wealth for the majority of households (Smith, 2006), and a programme of financial deregulation that, over a twentyyear period, loosened credit constraints and made housing wealth more fungible (more accessible or spendable) than ever before (Muellbauer, 2006). The UK provides an apposite case study because it epitomises a growing number of societies whose economic and welfare regimes revolve around the wealth contained in housing.…”

The Effect of House Prices on Household Consumption in Italy

“…Muellbauer's (2007) general observation that housing is the most important component of household wealth for OECD countries is then particularly true for Italian households (see also Bertola and Hochguertel 2008).…”

“…Interestingly, their estimates of housing wealth effects are larger than financial wealth effects for most of the countries analyzed. Studies using aggregate data, however, raise serious concerns, mainly due to the lack of relevant controls (Muellbauer 2008) and the risk that spurious relations might affect the estimates. To address these concerns, a number of studies have examined the same issues using panel-like, microeconomic datasets concerning the behavior of individual households with regard to their savings and housing decisions (following Skinner 1996).…”

The Economic Gains to Colorado of Amendment 66

“…Given the 1.5 million homes in Colorado, this implies $559 million in additional spending. Campbell and Cocco (2006), Muellbauer (2007) and Slacalek (2009) additionally document the strong positive relationship between housing prices and local and national economic spending. Thus, better schools will lead to increased demand for housing in Colorado, which in turn generates positive economic activity.…”