Visitors to the UK often complain that we talk about nothing but houses and house prices over dinner. They are wrong. The real problem, at least when it comes to public policy, is that we don’t talk nearly enough about housing and other forms of wealth.
Our national debates tend to focus on the earnings, employment, taxes and benefits that shape household living standards year to year. These are hugely important – but to put it bluntly the £11.1 trillion of wealth in 21st Century Britain is also huge. It’s time we started talking about it too.
If scale isn’t enough to convince you to care about wealth, fairness should. Wealth inequality is nearly twice as high as income inequality, and rose in recent years after a decade-long decline. This unwelcome return of rising wealth inequality is principally because of falling home ownership amongst poorer households.
As well as talking more about wealth, we could do with knowing more. Public policy affects what wealth we have as a country, who has it, what they use it for and where it goes when we die. We can’t expect to get policy right if there’s not a lively debate about our national wealth, as the Conservative manifesto difficulties over the ‘dementia tax’ proved. That means properly understanding where our intuitions about wealth are spot on and where they are quite simply wrong. At present the latter is all too common. Here’s five surprises about the state of British wealth to provide some content for tonight’s dinner time chat.
First, the rest of the country rightly thinks Londoners are scruffily dressed but may well be envious of what they assume to be much higher wealth held by typical Londoners. They shouldn’t be. Far from being top of the wealth league table, the typical Londoner is second from bottom, with only the north east having lower typical wealth. That’s the legacy of ludicrous house prices crashing home ownership rates in the capital and giving it truly scary levels of wealth inequality. The focus of wealth envy should instead be on the south east.
Second, today’s young adults (the snazzily named millennials) are assumed to stand out as being left behind on wealth, with no chance of getting on the housing ladder. Yes it is true that the idea that each generation should be able to accumulate more wealth than previous generations no longer holds true for young people. But it doesn’t stop there. In fact, every cohort born from the late 1950s onwards now has lower wealth than the one that came before it at the same age. The scale of this decline is quite staggering: a typical adult born during the early 1980s had half as much wealth at age 30 than someone at the same age born just five years before them. Half.
Third, before anyone starts moaning about snowflakes and the failure of millennials to work hard and save to get some wealth, it’s worth pointing out some hard truths about where the wealth we have comes from. Yes we pay off our mortgages and should rightly be pleased to have an asset we have slaved to buy. But we shouldn’t kid ourselves that we earned every penny of the wealth that houses come to represent. Here’s an example: a full 82 per cent of property wealth increases between 1993 and 2014 were driven by the good luck of house price rises, rather than the hard work of paying down mortgages or improving properties. At the peak of the house price boom of the early 2000s, almost one in six homeowners were gaining more from their homes rising in value than they were earning.
Fourth, housing gets all the attention but it isn’t even the biggest form of household wealth in the UK. Private pensions are, at a staggering £4.5trillion compared to the mere £3.9trillion we hold in property wealth. And if we needed further encouragement to focus more on pension wealth, remember that it is shared far more unequally than property.
Fifth, and finally, before we conclude the baby boomers all had it good we need to avoid policy forgetting that differences amongst the boomers can be as big as those with other generations. The poorest 25 per cent of boomers born in the 1950s have less than £60 in savings each.
So there are big surprises out there on wealth, and talking about them is crucial to getting policy right for the years ahead. Next time someone tells you to change the subject from wealth at dinner remind them that the British can only talk about housing or the weather. At least there’s something we can do about the former.