Wealth Inequality and Homeownership in Europe

Abstract

The recently published Household Finance and Consumption Survey has revealed large differences in wealth inequality between the countries of the Euro area. We find a strong negative correlation between wealth inequality and homeownership rates across countries. We use two decomposition methods to shed more light on this correlation. First, a Gini decomposition by homeownership status shows that the negative relationship is mostly driven by large between-group inequality across owners and renters. Second, to control for other observables, we conduct a detailed counterfactual decomposition of crosscountry inequality differences. We confirm the major role for homeownership rates in accounting for the wealth inequality differences. Our analysis suggests that the crosscountry variation is mostly driven by differences in the savings behavior of households in the bottom half of the wealth distribution and that those differences in savings are to a large extent channeled through housing wealth. D31, E21, G11.

Income, consumption and wealth inequality in Spain

“…The fact that in Spain real estate asset holdings are substantial even in the portfolio of richer households makes Spanish wealth inequality relatively low in international standards. In this regard, we confirm that the bias towards homeownership is a factor leading to lower wealth inequality as in Kaas et al (2017) and Kindermann and Kohls (2016).…”

Does homeownership promote wealth accumulation?

“…12 These homeownership rates are derived from the non-representative sample of households with positive income and inheritance and head's age above or equal to 35 years. For representative estimates of homeownership rates in Europe, see Kaas et al (2015).…”

“…SeeDietz and Haurin (2003) for a thorough review of the empirical literature assessing various consequences of homeownership.4Hilber and Mayer (2009) find that the positive externalities may be restricted to areas with inelastic housing supply. Hilber and Turner (2014) explore how mortgage interest deduction affect homeownership taking into account local housing supply conditions.5 For explorations of the role of housing for the composition of household wealth portfolios across European countries, seeMathä et al (2014) andKaas et al (2015).6 SeeEngelhardt (1996) for an assessment of the effect of tax incentives for homeownership on household savings.7 The gender of the household head turns out to be a weak instrument in the dataset used in this paper. 8 Related empirical papers on the topic areHeaton and Lucas (2000),Cocco (2005),Yamashita (2003) andChetty and Szeidl (2014).…”

Low Homeownership in Germany - A Quantitative Exploration

“…Differences in homeownership rates across European countries are largely accounted for by the bottom and middle deciles of the wealth distribution (see Kaas et al, 2016). In Figure 4 we show how the four counterfactual experiments affect the homeownership rate across deciles of the wealth distribution.…”

“…7 Cho (2012) utilizes a general equilibrium model and finds that mortgage markets play a dominant role in accounting for homeownership differences between the U.S. and South Korea. Kindermann and Kohls (2016) use a macroeconomic model based on distortions in the rental market to account for the negative relation between homeownership rates and wealth inequality across European countries, which is also documented in Kaas et al (2016). The next section gives further details of housing policies in Germany.…”