NIESR: UK’s obsession with housing wealth could be making the country poorer
Favourable public policy treatment of home ownership means mortgages are crowding out other forms of long term savings and investment, with potentially significant repercussions for individual pension savings but also for the UK economy as a whole, new NIESR research for the Association of British Insurers revealed yesterday.
In a two part study for the Association of British Insurers researchers began by analysing the savings behaviour of households with a mortgage, using the British Household Panel Survey. They observed an economically and statistically significant decline in those households’ saving rate which, other things being equal, translated in a 15 pc lower private pension income at retirement. This might be one reason why UK households hold a larger share of their wealth in the form of housing that in many other advanced economies.
Then researchers used the National Institute’s own Global Econometric Model (NiGEM) to calculate for the first time the potential cost to the economy of households holding such an unusually large share of their wealth in unproductive housing assets. They did so by simulating the macroeconomic consequences of alternative business investment scenarios.
- One scenario assumes that the composition of investment between business and housing becomes more similar to other OECD advanced countries, with business investment increasing from 66% to 80% by 2028. With total private investment held constant, this would see productivity become 2.3% higher and GDP £55 billion higher in 2028 than it would have been otherwise. GDP growth is predicted to be 1.9% rather than 1.7% and an additional 160,000 jobs would be created.
- In a second scenario, in which total private investment is also increased from 14.2% to 16.8% in 2028, again more in line with other advanced economies, UK productivity is 3.8% higher than it would have been otherwise, GDP is £90 billion higher and GDP growth is predicted to be 2.1% rather than 1.7%., generating an additional 220,000 jobs.
Dr Monique Ebell, NIESR’s Associate Research Director who co-authored the report, said: “This research helps us to understand how much UK households’ overreliance on housing as a form of saving and investment is affecting their own income at retirement, and the UK economy as a whole. Policy makers would do well to examine more closely the relationship between the UK’s long standing productivity weakness and incentives to invest in housing rather than productive assets.”
ABI’s Director of Policy, Long-Term Savings, Yvonne Braun, said: “This research clearly demonstrates the value of the long term savings industry. The way savings in pensions are actively invested in businesses and the real economy is good for jobs, productivity and GDP growth. The research also raises questions about the impact the high cost of housing in the UK has on people's ability to save for retirement. As important as a home is, it can’t replace a retirement savings plan. More work and research in this area is vital so we can develop a more balanced and holistic approach to all forms of long-term savings.”
The report, entitled , “Is an Englishman’s Home his Pension?”, is available here.
The British Household Panel Survey covers 10,000 individuals each year between 1991-2012.
For further information about the research or to organise interviews with Dr Monique Ebell please contact NIESR’s Press Office:
Paola Buonadonna p.buonadonna @niesr.ac.uk or call: 0207 6541923
The Association of British Insurers is the voice of the UK’s world leading insurance and long-term savings industry. For further information about ABI or to arrange interview with Yvonne Braun please contact ABI’s press office on: 020 7216 7506
NIESR aims to promote, through quantitative and qualitative research, a deeper understanding of the interaction of economic and social forces that affect people's lives, and the ways in which policies can improve them.
Latest News from
Climate Change Committee is “acting like an activist NGO”, says IEA expert06/12/2021 10:10:00
Victoria Hewson, Head of Regulatory Affairs at free market think tank the Institute of Economic Affairs, commented on the UK Climate Change Committee’s report on the outcome of COP26
Adam Smith Inst - UK should become ‘Singapore-on-Thames’06/12/2021 09:10:00
Boost growth and public services by learning from Singapore’s success, says think-tank
The King's Fund responds to the Government's adult social care White Paper02/12/2021 09:35:00
Sally Warren, Director of Policy at The King’s Fund commented on the publication of the government’s adult social care reform White Paper, People at the Heart of Care
CMA order for Meta to sell Giphy could undermine digital trade and innovation, says IEA regulation expert01/12/2021 10:10:00
Victoria Hewson, Head of Regulatory Affairs at free market think tank the Institute of Economic Affairs, commented on the news that Facebook’s parent company, Meta, has been ordered to sell Giphy by the UK’s Competition and Markets Authority
JRF responds to extension of Scottish Child Payment30/11/2021 15:15:00
JRF responds to the Scottish Government's plan to double Scottish Child Payment for children under six from April, and all eligible children under 16 by the end of 2022.
New ‘pingdemic’ could cost economy at least £2 billion, says economist30/11/2021 11:35:00
Julian Jessop, Economics Fellow at free market think tank the Institute of Economic Affairs, commented on the planned reintroduction of some Covid measures
IFS - Education spending changes put a major brake on levelling up30/11/2021 10:35:00
The cuts to education spending over the last decade are effectively without precedent in post-war UK history, including a 9% real-terms fall in school spending per pupil and a 14% fall in spending per student in colleges.