Historically, home ownership has been seen as a way for less affluent households to build wealth. This notion was adopted by Australian policy-makers in the early 1900s (Berry, 2010); it was discussed as the basis for a ‘property-owning democracy’ in 1920s Britain; and it was a priority action in the 1934 US Housing Act (Grigsby et al, 1983).
From the 1950s, more countries espoused the aim of growth in home ownership (Causa et al, 2019). Governments used tax incentives, created lending circuits and mortgage insurance arrangements, and took regulatory measures to assist households on moderate incomes to access capital at low interest rates to buy homes (Hilber and Schhni, 2016; Mulheirn et al, 2022; Stephens et al, 2015).
Policies promoting home ownership had a clear economic rationale. Purchasing a home using a mortgage was regarded, both by governments and households, as an effective means of rebalancing savings and spending across the lifecycle of household incomes.
That shift helped households in later years by reducing housing outgoings or, in some cases, increasing income via lettings and making bequests. By encouraging home ownership across a broader range of incomes, it was intended to promote asset ownership among a wider range of socio-economic groups.
Research suggests that this approach – using home ownership to strengthen household capital formation and spread it more equally – was successful until the late 1970s (Piketty, 2018; Maclennan and Miao, 2017; OECD, 2021).
But in the decades since then, rising house prices – particularly relative to incomes – have made savings from working largely insufficient to buy a home. This is especially the case for lower-income individuals and for those without family wealth to help raise a deposit.
This has had consequences for social mobility (the extent to which young people’s opportunities in life are affected by their family backgrounds) and long-term wealth accumulation – concentrating wealth among older groups and in metropolitan areas.
Did home ownership bring wealth?
In the early period of home ownership, the system of accumulating wealth through housing was driven by household incomes (reflecting work efforts) and household spending and saving decisions. It was also linked to household spending preferences for home ownership.
Household effort and thrift with month-by-month mortgage payments drove the steady accumulation and spread of individual housing wealth. With house price growth rarely exceeding low inflation rates, capital gains were a minor element in the accumulation of wealth.
Through most of the period following the Second World War, housing inheritance amounts were substantially smaller (in real terms) than now. They also tended to be received earlier in an individual’s life (Forrest and Murie, 1995). To an extent, this may also have reflected trends of growing life expectancy.
Low house price inflation had a crucial effect in allowing a broader range of housing choices (known as tenure-neutral) – including owner occupier, landlord or renter – and of asset portfolio selections.
Owner occupation was not always the best choice for all households, and there is some evidence that renting could bring about higher household wealth than owning in the pre-1980s period (Goetzmann and Spiegel, 2002).
Rental choices remained an alternate, broader and long-term option for some lower-income households. This route was reinforced through regulatory measures that controlled rents and rental growth, and therefore suppressed housing costs.
What has changed in recent decades?
This, now historical, account of the savings and wealth-spreading merits of home ownership remains the core narrative of housing policy, which continues to promote house purchases.
Unfortunately, these key policy beliefs now fly in the face of decades of evidence that housing market processes and outcomes have fundamentally changed since these ownership policies were set.
Real house prices – in the UK and elsewhere – were relatively stable until the mid-1970s (OECD, 2021). They have since sustained long-term increases, through significant cyclical phases.
In inflationary contexts, housing assets (especially when financed by mortgages) can quickly become an unintentionally ‘speculative’ investment. When general inflation rates are not quickly reflected in mortgage rates, inflation writes down the real value of mortgage repayments.
These effects were important in the UK until the late 1980s when the real value of mortgage debt was quickly written down. They have become important again since 2021, as inflation has once again risen.
After the 1980s, in the long boom with surplus global savings, the environment for mortgage lenders and borrowers was one of low real interest rates and inflation rates. Mortgages became relatively cheap to repay. Where house prices rose ahead of inflation, and reduced the cost of capital, house purchases became a route to asset accumulation.
Critically, in the same period, extensive, competition-enhancing deregulation of mortgage markets (Mulheirn et al, 2022) allowed households to make different choices in recognising more diverse income sources. This also permitted loan-to-income ratios to rise substantially from typical pre-1980s values (from two to three, to five or six) and facilitated higher loan-to-price ratios (with higher lender risks).
These changes brought a range of different mortgage instruments, particularly a marked increase in the use of fixed-rate mortgages. They also boosted mortgage equity withdrawal and expanded the ability to borrow more for investment in buy-to-let properties since 1996.
The UK – like most countries – did not create efficient housing markets to serve financial deregulation. Most obviously, choices to do so would have induced voter resistance that financial regulation did not.
For example, reform of housing supply systems would have facilitated output responses to have a more flexible supply of housing. Similarly, changes to the housing tax system would have raised fiscal resources and reduced speculative demands.
As a result, the political economy of home ownership policies created an inflationary bias that has undermined the savings and wealth-spreading roles of owning property. This has, instead, shaped a ‘rentier’ housing economy (Maclennan and Miao, 2017).
It is now inaccurate to see home ownership as a route to steady savings. The ‘passive’ speculation phase, in which homeowners simply accepted gains made from ownership, had stopped by the early 2000s.
Homebuyers have since moved to housing asset speculation. More frequent trading-up and multi-home ownership reflect proactive strategies and active leveraging approaches to maximise the capital gains from housing (Ronald et al, 2015).
As real house prices have risen relative to incomes, savings from working are generally no longer sufficient to meet rising deposit requirements. This has especially been the case for more marginal borrowers after the introduction of ‘prudential borrowing’ regulations following the global financial crisis of 2007-09.
Today, inheritances and support from families play an increasingly important role in raising money for deposits for first-time homebuyers and even to help younger buyers to become landlords (Searle, 2018).
Housing wealth is not simply an outcome of housing choices, but also a result of leveraging and family gifting. Bequest patterns have now become a key determinant of further housing and tenure choices.
Incomes and savings are no longer the only drivers of housing decisions, but are joined by accumulated housing wealth. This has made the wealth formation process increasingly recursive within extended families, which has consequences for social mobility and long-term wealth accumulation.
A further consequence of sustained house price rises, with largely unchanged housing taxation systems, has been that ‘steady savings’ through mortgage repayments account for an increasingly smaller share of total accumulated housing wealth and growth in housing equity.
House price appreciation – not savings – primarily drives growth in housing wealth (Corlett and Leslie, 2021). This has led to important differences in accrued household wealth between regions (with growing metropolitan areas as faster gainers than rural regions) and between generations (with older cohorts of owners having substantially more housing wealth) (Maclennan, 2012).
In the ‘speculative’ era of home ownership, there is also evidence to suggest that the desire for capital gains has led to riskier house-buying choices (despite prudential borrowing policies).
Changes in labour markets – with more ‘flexible’ contract arrangements and more disrupted patterns of earnings across an individual’s lifecycle – along with more varied and less permanent family relationships and longer life expectancies than in the 1970s, have led to more disrupted patterns of growing housing capital.
Uninterrupted owner occupation – with steadily accumulating wealth – is a diminishing prospect for first-time owner cohorts. Recurrent switches between owning and renting at all stages of people’s lives have become more commonplace (Köppe, 2018).
A recent Australian study highlights the costs of the insecurities that emerge for marginal homeowners who are at risk of ‘falling-out’ of ownership (Wood et al, 2013). It also emphasises the enhanced wellbeing that secure owners enjoy compared with those in other housing arrangements.
The housing, and related, policy narratives that initially drove government commitments to home ownership no longer appear to apply. Changing policies, labour markets and household behaviour suggest that housing market processes have altered.
What does the evidence on housing markets and wealth now suggest?
In broad terms, the post-1970 patterns of growth in home ownership and wealth suggest that outcomes no longer always match initial policy aims. Further, the damaging collateral consequences of meeting them may be considerable.
Many studies of home ownership and wealth inequality are focused on the UK (such as Forrest, 2018, 2021; Forrest and Hirayama, 2018; Forrest and Murie, 1995). As noted above, there is a historical cross-country negative association between home ownership and wealth inequality (Causa et al, 2019).
Recent evidence suggests that larger shares of home ownership within a country or region still result in smaller overall wealth inequalities for post-1990 outcomes through spreading wealth among middle-income households (Bivens, 2015; Kindermann and Kohls, 2018; O’Farrell and Rawdanowicz, 2017).
Higher home ownership may not necessarily mean a more efficient housing system or a more stable economy. But overall it may still induce more equal wealth distributions (Soaita et al, 2019). The effects of extending ownership via access to mortgage finance still offset any rising inequality of owners versus renters, but the policy costs appear to be rising (as home ownership rates are now falling in major economies).
Yet since the 1980s, and in contrast to earlier periods, it is also apparent that rising house prices in advanced economies can mean that home ownership increases inequality. This trend has strengthened since 2000 (Fuller et al, 2020) and through the house price boom during the Covid-19 pandemic (Ong ViforJ and Phelps, 2023).
In the UK, a series of reports from the Resolution Foundation suggests that although inequality in household wealth has been stable in the past 14 years (Shah, 2022), the absolute wealth differences across intergenerational cohorts are larger and show signs of increasing, particularly during the pandemic. This is possibly due to the housing wealth windfalls for different age cohorts (D’Arcy and Gardiner, 2017; Leslie and Shah, 2021).
Overall, home ownership in the UK has been in decline since 2004, particularly among younger generations (Whitehead and Williams, 2017). Indeed, home ownership for younger cohorts fell by half between 1989 and 2016, with a small recovery in recent years (see Figure 1).
Intergenerational inequalities are growing since older generations have been able to accumulate wealth at a faster pace than younger generations, benefitting from passive strategies that make use of outright home ownership exclusively in terms of rent-free living and tax settings (Bourquin et al, 2022; Shah, 2022).