Who owns Britain?

Originally posted as a column for Inside Housing on November 29.

What happens to the huge wealth generated by soaring house prices is a crucial issue not just for housing but also for the future of Britain.

The Office for National Statistics puts the value of unmortgaged housing equity at just under £4 trillion and second only to pension wealth of £4.5 trillion in total personal wealth of £11.1 trillion.

Savills estimates unmortgaged equity at over £5 trillion and says housing is now the single biggest source of wealth in the country and a report today by the Halifax says the total value of the UK housing stock has passed £6 trillion for the first time.

Whatever the number you put in front of those 12 zeros that is a serious amount of money- the UK’s national debt is currently worth £1.8 trillion.

As by far the most visible divide between baby boomers like me lucky enough to have been born and buy houses at the right time and millennials born at the wrong time and stuck in the wrong housing tenure, housing dominated an event on wealth inequality that I went to in Bristol recently.

Who Owns Britain? was part of the city’s Festival of Economics and featured a panel of John Hills of the London School of Economics, Karen Rowlingson of the University of Birmingham and Torsten Bell of the Resolution Foundation.

Some general context is needed here because even if you know some of the figures they are still staggering.

Where inequality is usually seen in terms of incomes, wealth inequality is much greater. As John Hills summed it up, the highest earning 10% of households have incomes four times higher than the lowest earning 10% but the wealthiest 10% have 83 times more wealth than the poorest 10%.

As John Hills summed it up, the distribution of wealth is not as unequal as it used to be but it is more important than it used to be. The rise of home ownership during the 20^th century is a key reason why Britain is not as unequal as it was between the wars but it is now of course falling. Personal wealth has increased from three times personal income in 1975 to six times personal income now.

That’s led to the rise of intergenerational inequality, with the average 30-year-old now half as likely to own their home as the average baby boomer when they were aged 30. ‘Housing is the thing driving inequality today,’ said Torsten Bell, ‘and 82% of the increase is down to luck.’

However, Karen Rowlingson pointed out the inequalities that exist within as well as between generations. That can apply between genders, and especially to lone parents, but also between places, with gains in housing wealth concentrated in London and the South East.

The generational divide was so clear that anyone asking a question at the event was asked to state which generation they were from. The first came from a 23-year-old who asked whether there was any good news for millennials.

The answer was pension auto-enrollment but even though it has been a success I’m not sure that’s going to cut it.

According to Savills, people over 65 now own £1.5 trillion in housing equity whereas those under 35 own just £200 billion.

Much of this disparity is the natural result of people paying off their mortgages and owning their homes outright when they are older.

However, that cannot explain all of it and as mortgaged ownership continues to fall among younger generations things will get worse in future.

But was this just about luck? The popular answer is that we simply did not build enough houses and we are now seeing the consequences. A more nuanced one would look at incentives to over-invest in property.

The lesson of the last 50 years has been to borrow as much as possible to buy as big a house as possible. Then, if needs be, borrow even more to buy another one, rent it out and get someone else to pay your mortgage.

This has not happened by accident but through complacency about the consequences of pandering to nimbyism, under-taxing housing compared to other forms of investment, liberalising the mortgage market, deregulating the private rented sector and neglecting social housing over the last 30 years.

And a significant part of the luck is a relatively recent phenomenon. Record low interest rates first prevented the housing market crash that would surely have followed the Global Financial Crisis after 2008 and then fuelled fresh price rises. On the Halifax’s figures, the value of the housing stock has risen by £2 trillion since 2007.

Even now that we do know the consequences, the best the government has to offer is more Help to Buy and cuts in stamp duty that help a few people on to the housing ladder but fuel even greater price rises.

And all the while an even bigger question is looming: what will happen to inequality when all that housing wealth passes down unequally between the generations?

We are already seeing this in the rise of the Bank of Mum and Dad, an institution that relies on your parents owning their own home, and the effect of inheritances.

But as the owners of homes that have shot up in value in the last 20 years die and leave their homes to their children it will become increasingly clear that this is an intra- as well as inter-generational problem.

So what can be done about it? Torsten Bell did at least have the good news that ‘as a politician you can’t be anti-housebuilding now’ – as he said David Cameron was and Theresa May would be given a choice.

The obvious response to the bigger issue is one from which politicians will run a mile: tax.

For John Hills, inheritance tax could be a way to tackle the problem of all that wealth cascading down through the generations.

Karen Rowlingson suggested that removing the capital gains exemption for a main residence on death might be one option. However, she also pointed to survey evidence showing just how difficult reform will be politically: around half of voters now favour abolishing inheritance tax completely.

Remember the 2007 election that never was? One explanation for Gordon Brown’s decision to wait until 2010 is that he was spooked by George Osborne’s promised to eliminate inheritance tax on estates worth less than £1m.

And remember the dementia tax in 2017? While attention has focused on younger voters at the last election, there are good arguments that some older voters failed to turn out for the Conservatives because of what they saw as their right to pass on their housing wealth.

Another answer would be a progressive property tax (or a land value tax) rather than a regressive council tax.

John Hills pointed out that the council tax on a flat in Grenfell Tower that sold shortly before the fire for £250,000 had council tax of £944 a year.

A house nearby sold for £30m had a council tax of £2,124. A 100-fold increase in property value generated a tax multiple of just 2.5.

But that wouldn’t be without its problems either: Labour’s plans for a mansion tax at the 2015 election went down very badly with home owning supporters in London and there was no repeat of the pledge in 2017.

Instead we are left with stamp duty, a tax that gums up the housing market by taxing transactions but has become a huge source of revenue for the Treasury.

There are now higher stamp duty rates for landlords and second home owners but they are only payable when someone buys a property. The system leaves most of those multiple zeros of existing housing wealth entirely untouched.