All governments tend to have a headline housing policy worded roughly as follows: ‘A decent home for all at a price within their means’. This sums up the dimensions of the housing problem to be solved: quantity, quality and affordability. If incomes were completely equal (adjusted for household size), and assuming housing standards were set at a sensible level relative to the general economic level of the society, then there would be no housing affordability problem. The more the distribution of income becomes unequal, the greater the housing affordability problem to be tackled by some form of intervention in the market, if all households are to have the minimum decent standard of housing whilst not suffering other material hardships or financial stress (Bramley 2012).

Variations in housing needs, for example, through family size or disability, and/or geographical variations in the market cost of housing, may exacerbate shortfalls without further intervention. Intervention may take the form of rent regulation, publicly subsidised provision or a financial housing allowance. Many countries have tried all three at different times, the UK in roughly that order since 1915. It could, in theory, also take the form of intervention to change the distribution of income, whether the primary distribution of earned incomes (‘pre-distribution’) or the distribution after taxation and social security transfers. Governments in Western countries have become more reluctant to engage in the former, through formal incomes policies or compacts with ‘social partners’, although this is probably a significant area of difference between countries. Most governments employ progressive direct taxation and social security systems to ensure a significant degree of progressive redistribution (from richer to poorer), but there is a growing reluctance to use highly progressive income taxes because of globalisation and international competition.

Inequalities have generally increased since the 1980s across most of the advanced industrialised countries, as documented by the Organisation for Economic Cooperation and Development (OECD) (2011, 2014) and others. In 17 out of 22 OECD countries inequality increased, with an average rise of 10 % in the standard ‘Gini index’ measure[1]. Even in countries which are relatively more equal the top 10 % receive incomes six times higher than the bottom 10 %; in countries such as the UK, Italy, Japan and Korea this ratio is around ten times, whilst in the USA, Israel and Turkey it is 14 times. The most important contributory factor is greater inequality in wages/salaries, especially runaway growth in the top 1 % and 10 % groups; contributory factors included the high demand for key ICT skills, deregulation of labour markets, the decline of unions and collective bargaining, and the rise of two-earner professional couples. Tax and transfer systems became somewhat less redistributive in this period, but managed to reduce overall inequality by 25 %. Wealth is always unequal and has become more unequal still (Picketty 2014) and this contributes to income inequality whilst interacting with the housing market. With housing being the major asset for many households, differing levels of housing wealth is a major factor in overall inequality.

Through the period of crisis and recovery, pre-tax/transfer incomes became yet more unequal, with dramatic increases in Greece, Ireland and Spain in particular, according to the 2014 OECD update. Tax and transfers generally helped to cushion impacts to a large degree in many countries, however. Across most countries, there has been a striking shift of poverty away from the retirement age groups but increasing greatly in the younger adult age group. This is especially apparent in poverty ‘after housing costs’, which correlates with the widespread phenomenon of increasing difficulty for young generations to access home ownership.

It has also become more ‘respectable’ to talk about inequality and its negative impacts on society and the economy. Picketty (2014) provides an authoritative historical account of wealth inequality in France, Britain and the USA, and some other countries, and effectively punctures the widely believed ‘Kuznets thesis’ that inequality inherently tends to rise in the early industrialisation/urbanisation phase but then fall in the later industrial/post-industrial phase. Picketty shows that it was world wars and drastic government interventions in their aftermaths, including consequent inflations and high tax levels, which brought down inequality from its ‘gilded age’ peak in 1914 to the moderate levels of the 1950s. Since then, there has been a gradual but insidious tendency towards growing wealth inequality, accelerating since 1980. Picketty offers a very simple model to explain this: if the rate of return on capital exceeds the rate of growth, concentration of wealth will increase; and if (as seems very likely) larger concentrations of wealth have better access to higher rates of return, and better ways of avoiding tax, all the more so.

Wilkinson and Pickett’s (2009) The Spirit Level put forward and popularised the view that inequality is actually bad for societies; that more unequal societies actually do less well on a wide range of social outcomes. They claim that inequality is very bad for health, particularly mental wellbeing, which impacts also on physical health; also that inequality feeds crime and fear of crime, weakened social interactions, trust and ‘social capital’. Marmot (2015) has particularly developed the argument about health and inequality. There is quite a strong link between some of these arguments and the growing literature on the economics of ‘happiness’ (Layard 2005). It has also been argued that inequality is actually bad for the economy, contrary to the prevailing ideology of the last 30 years or so (IMF 2014). In part, this is a rediscovery of a Keynesian perspective from the 1930s and 1940s—underconsumption by the rich. In part, it is also a reflection on the experience of the 2008—10 financial crisis, when it became apparent that the reward and incentive structures in banking and finance were such as to encourage reckless risk-taking with other people’s money and rewards for failure as much as success.

These inequalities challenge the housing system through at least three routes. Firstly, a growing share of the population towards the bottom of the distribution, particularly in the younger age cohorts, will have inadequate incomes to meet the market cost of adequate housing. Thus, they are at risk of experiencing various forms of housing need (unable to form a household, buy or move, sharing, overcrowding and poor conditions) and/or facing financial stress and risk, or material deprivation in terms of non-housing consumption (Bramley 2012). Secondly, to the extent that the system of housing subsidies and allowances recognises these problems, then the cost to the state will rapidly escalate. Thirdly, at the upper end of the income and wealth distribution and perhaps particularly amongst older age groups, there is excess purchasing power which is being invested in housing real estate, whether by increasing size and quality of housing occupied, second and holiday homes, help to family members to buy or as investments (buy-to-let, or simply buy-to-leave). The last factor inflates demand, particularly in capital cities and other hotspots in the market, without contributing much to the supply side of the equation, thereby further pushing up prices out of reach of the younger group on lower incomes. At the top end, there is international capital movement from riskier to safer capital cities (e.g. from Russia and Greece into London), further inflating particularly overheated centres, which exert an influence on prices across a much wider region. The interest of better-off middle-aged and older households in buy-to-let investment reflects both general trends in income/wealth distribution but also post-crisis disillusion with low interest returns to savers, other financial investment products available and pension changes. Recent trends in this respect make the UK more similar to countries such as Australia and New Zealand, which already had large ‘mum and dad’ investor private rental sectors.

  • [1] The Gini coefficient essentially measures half the difference between every individual income andthe average, thus measuring the share of total income which would have to be redistributed toachieve complete equality.
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