Jun 17, 2012

Are high home-ownership countries wealthier?

As the exhibit shows, there’s evidently much more to a country's level of home ownership than the wealth of its citizens. Germany is one of the richest countries on the list, yet

Alan Davies — Editor of The Urbanist

Alan Davies

Editor of The Urbanist

Rates of home ownership in selected countries (source: Wiki)

As the exhibit shows, there’s evidently much more to a country’s level of home ownership than the wealth of its citizens. Germany is one of the richest countries on the list, yet its home ownership rate is 42% compared to 98% in considerably poorer Bulgaria.

I’ve taken this data from Wiki, but it’s similar to some numbers shown by Randal O’Toole at a policy forum, The death and life of affordable housing, run last week by US libertarian think tank, The Cato Institute.

The panel had some well known writers on how regulation affects cities, including the Institute’s Randal O’Toole (American nightmare), as well as Matt Yglesias (The rent is too damn high) and Ryan Avent (The gated city).

Early in the proceedings, O’Toole shows a PowerPoint slide of home ownership levels in various countries (at about 18:00). It’s essentially an aside to his main argument, but it illustrates the enormous variability in ownership rates across nations and, more particularly, that they’re not correlated strongly with income.

His slide includes some additional countries with higher home ownership rates than Australia (69%) i.e. Lithuania (96%), Mexico (83%), India (82%), Iran (81%) and Greece (80%). It also shows Switzerland, at 35%, has a lower proportion of owners than Germany.

Tyler Cowen at Marginal Revolution subsequently took up this topic and added a few more countries. Romania, Croatia and Slovakia all have home ownership rates which, at more than 90%, are well above Australia’s.

Matt Yglesias extended the discussion at his own site, Moneybox, adding some more countries. Iceland, Portugal, Chile, Israel, and Luxembourg also have higher rates than Australia, even though home ownership is as ingrained in the Aussie national mythos as kangaroos and cobbers.

Bear in mind there can be considerable differences in the dates at which the estimates are taken for each country, in some cases as high as ten years. Still, this is not the kind of variable that changes quickly, so the overall scale of differences shouldn’t be greatly affected.

Cowen and Yglesias make the point that, at least within Europe, the most economically challenged nations – generally former Communist countries – have the highest rates of home ownership, whereas the lowest rates are generally seen in the stronger economies.

Very high rates of home ownership are not necessarily incompatible with a strong economy though, as Singapore and Norway illustrate. Australia is another example of an economically robust country with a relatively high rate of ownership.

Yet contrary to the common assumption in Australia, home ownership is not a reliable measure of economic strength and it’s not a pre-condition. Nor of course is a low rate of ownership. Political factors are immensely important – for example, the high rates in former Communist countries are the result of a deliberate policy of privatisation.

From the point of view of someone seeking shelter, home ownership makes sense in Australia because it’s a subsidised way to significantly increase wealth with relatively low risk. It’s at least as much an investment decision as a shelter decision.

But like cars, high levels of home ownership are not a pre-condition for creating a country with a high material standard of living for its citizens.

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8 thoughts on “Are high home-ownership countries wealthier?

  1. Hamis Hill

    I understand that it it is entirely futile to slap “specialists” around the head with a few facts because it happens so often that their nervous systems become completely unresponsive.
    But on the understanding that there may be afew grey cells still sparking away here goes.
    Long, long ago, in the depths of time, before any little urbanists were even born, the
    Great father of Economics, Adam Smith proved that;”a dwelling house, as such, adds nothing to the income of its inhabitants”.
    The Singaporean Government, dominated by by a people with a great respect for scholarship and as a result actually having read the Wealth of Nations decided that the wealth of Singaporeans was better invested inactual wealth producing assetts commissioned Australian civil engineering companies to build, adequate speculation free housing inorder that the islands manufactring workers would not be burdened, nor would their emplyers be burdened. “uncompetitively”!!!, by the housing component of their wage costs.
    See Adam Smith above, as did the post-war conquerors of Germany who, in order to create wealth and not just consume it, quarantined finance to the manufacturing sector, and incidentally protect the country, as in the case of Singapore from the threat of communism which breeds in poverty.
    But you “Urbanists” already knew all this and your committment to to the coming Abbott
    Recession caused by the Howard-Costello credit card economy and mindless, feel-good real estate speculation, GFC-style, is because you want the economy to collapse and communism to rule in Australia, is that right?
    No, do not think too hard you would not want your brains to explode.
    Just return to your self referential drivel and babble, your location, location, location, comfort zones of self delusion which ‘add nothing to the income of their inhabitants”!

  2. michael r james

    I think HK has something similar to Singapore. But since the 1997 handover there has been less public housing constructed by the government until it is now at crisis point with long waiting lists for housing and severe crowding amongst the poorest strata. Strange that this should happen with the PRC looking over their shoulder but the overblown HK property market is being blamed with it being claimed investors (ie. speculators) wanting fewer new apartments built to allow the current backlog of (expensive) unsold apartments to clear.

    In France a similar huge public housing effort was instituted after the WW2. (See Wiki extract below), about one third for sale, the rest for rent. These HLM get a bad rap but my own view is a bit biased by seeing them in Paris where they are quite nice (none in the inner ring arrondissements but lots in the outer ring) but it is true that they are much different (and older) than those Stalinist blocks in the poor eastern suburbs that get on the news. Have a look here at the nice ones in the 13th arrondissement:
    I understood that tenants could buy them or acquired certain rights after a period but cannot find anything about that.

    [HLM (habitation à loyer modéré), French for “housing at moderated rents” or “rent-controlled housing”, is a form of subsidised housing in France. There are approximately four million such residences, housing an estimated 12 million people — nearly one-fifth of the population of France. HLM’s constitute 40-50% of all rented housing in France, and annual government subsidies to the tenants and constructors of HLM residences run to hundreds of millions of euros.]

  3. suburbanite

    Singapore choose a different model of promoting widespread home owndership with the Housing Development Board (HDB). According to their Statistics HDB has built over 990,000 dwellings since the 60’s and more than 80% of the population live in HDB built flats. The government sells the flats as leaseholds, typically 99 years, and has income limits for purchasing the subsidised flats. HDB also maintains the flats and does periodic upgrades. Surprisingly the leaseholds don’t seem to dampen prices much. Not sure if any other countries have tried this kind of publicly provided housing to this extent with an ownership model.

  4. michael r james

    boscombe at 9:06 pm
    and AD

    I think what boscombe is really saying is that s/he wouldn’t want to be a renter in a uncaring capitalist country. My point was that those (rich) 7 countries with apparent lower home ownership are precisely the ones who have strong social provision for the disadvantaged.
    It is very difficult to find any country that has got this balance right. Clearly all the Anglo countries, especially UK, USA & Australia (Canada?) including ex-colonies like HK, have truly unsustainable house price inflation. Japan went thru perhaps the developed world’s craziest property bubble (remember when they said that the relatively modest Imperial Palace in central Tokyo was worth more than all American real estate; yes all, 100%.)

    I believed the French (and possibly the Germans and these other in the 7) had one of the better systems because the rules of home loans and Capital Gains Tax stopped property becoming a game of speculation and generator of inter-generational inequity. (See my earlier posts as to why those lower home ownership percentages are not necessarily bad.) And they have some of the best living environments in the world from extremely big cities to provincial cities to small towns. If the French have fiscal issues and employment issues (arguable just how bad these are relative to ours) they are related to other policy issues.

    In Australia it has been apparent for practically our entire modern history that we put too much wealth into property. There is no free lunch. It means we put less into more productive uses which would generate wealth and jobs for the future, though superannuation is a recent counter-force (though we are stuck with very dull investments like banks & mining, anything else considered too “risky”.) IMO it is one of the most significant reforms we need. It would have to be gentle, say, over tens years, and thus needs to be bi-partisan and there we run into its impossibility. We get what we deserve. Very expensive homes but poor public infrastructure particularly PT, and very impoverished truly innovative industry.

  5. boscombe

    “high levels of home ownership are not a pre-condition for creating a country with a high material standard of living for its citizens.” Perhaps not, but paying off a mortgage was probably about the only form of saving that many people managed to achieve, and at least, by the time they stopped earning, they had stopped paying, and could even ‘downsize’ from to free up some cash. I wouldn’t like to be old and paying rent – rents in boomtown Perth are sky-high. I notice that people my age – not far off retirement – are preparing for it by plastering their roofs with solar panels as a way of maintaining their standard of living with less income

    Boscombe: I agree (see my 2nd last para). The ‘system’ is now designed around home ownership, but it could/could’ve been done differently without making us any worse off on average. AD

  6. michael r james

    Incidentally the more civilized parts of the US also have strong renter laws. Such as NYC. And Berkeley—the suburb on the bay opposite San Francisco that contains the University of California at Berkeley–which is often referred to as the People’s Republic of Berkeley. I have been told by a Californian that the SF property market is to be avoided for investment purposes because of the renter laws.

    I mention this factor because it really is significant. When I lived in Brighton & Oxford UK (a decade apart) both were expensive to rent (and typically grotty for what you paid) such that in Oxford I reckon it was more expensive to rent than to purchase and pay the mortgage. So I owned houses in both towns. The same has happened in Australia, especially Brisbane and especially over the last few decades. It is an expensive proposition to pay rent in Brisbane now, and all the economist’s argument that it can make more sense to rent does not remove the feeling that you are flushing substantial fraction of your earnings straight down the toilet.

    As it happened I also purchased (after 7 years of renting) in Paris but as much I tried to tell my Parisian colleagues that they were nuts not to buy because it looked too cheap to last. (It was.) But they were unmoved to a person because renting was not that uncomfortable, and they were not willing to give up lifestyle costs (winter & summer vacations, restaurants & other social life etc). Renting laws also regulate the maximum fraction of your salary you are allowed to pay for rent–and all this is strongly regulated (no bribing the landlord etc). Libertarian economists hate this but it has the effect of dampening rents, or you could say getting the type & cost of available accomodation to match the market. (I don’t know if this remains true as I am out of touch since I left; Paris & France has gone thru a mini-property boom in the new century.)

  7. michael r james

    I would be very suspicious about what some neo-lib economists (esp. Matthew Yglesias who systematically gets the wrong end of the wick) might be trying to prove by showing such data. It is extremely context dependent. In some of these rich countries such as Germany and France (and probably all bottom 7 in the list/graph; kind of indicative that this group are together at the bottom) there are strong renter laws that obviously has a big effect on one’s decision about renting versus purchase. In France historically it has been a decision not taken until mid-life, partly from social factors but also bank/lending law that insists on 30% of purchase price being cash; so people take out special savings accounts when they begin paid employment so as to qualify at some point quite a bit later.

    Also in old, established countries like France and Germany there is a familial effect. I knew several people who were living in apartments owned by their family (the bourgeoise swine!) and so did not have to worry about the question. This would have been minimal in the Australia most of grew up in but not so now as boomers often have two or more houses.

    There are also CDG rules that dampen down property speculation and therefore turnover: even one’s primary residence is subject to it but with a reduction in the tax applicable for each year of ownership until it reaches zero at about 15 years (from memory). So this too would tend to reduce making the choice when young. For example a lot of younger people may prefer to live in Paris until later when they might buy a (larger) house in the suburbs or in a regional city. Also I know in Paris quite a few people rent apartments but own a country house to which they flee every weekend; I don’t know how widespread this is but there were at least three in the lab I worked in. (So it depends what this graph represents; is it, do they own the house they live in?)

    I suspect the delay in purchasing would almost entirely account for the apparent lower figure for France; if one took “life long” stats (or could see the age profile) I suspect it would be little different.

  8. Last name First name

    Thanks for the info but it pretty meaningless comparing Bulgaria with Germany. For example the road death per 100,000 population of rate of Bulgaria is three times higher than Germany which has more many more cars per 100,000 population..What’s more the road death rates in Germany are dropping but thy are likely to increase in Bulgaria

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