The pandemic and wealth inequality

Originally published as a column for Inside Housing.

Three numbers from a report published this week sum up the financial impact of the pandemic on households – and housing is at the heart of it.

First, £50,000. That’s the average increase in the wealth per adult of the richest 10 per cent of households, says the report by the Resolution Foundation think tank.

Second, £7,800. The increase in the wealth per adult of households in the fifth decile, those right in the middle of the wealth distribution.

Third, £86. That’s the average gain per adult in the poorest 30 per cent of the population.

In part, these numbers reflect the pattern established in the 1980s and then accelerated after the financial crisis whereby wealth begets wealth.

But they also represent something new: the Resolution Foundation estimates that total household wealth has increased by £900 billion since the start of the pandemic, making the period we have just lived through the first recession since the end of the Second World War in which we have got richer.

Some of that is down to spending less (£125 billion) and getting into less consumer debt (£10 billion) but over 80 per cent of it is due to rising asset prices (£750 billion). 

Some of that is driven by rising share values but most of it is due to increases in house prices, which are now up by more than 10 per cent since the start of the pandemic, fuelled in part by the stamp duty holiday.

True, as the report acknowledges, prices may fall back when the holiday ends, but they will also continue to be underpinned by interest rates and quantitative easing and further supported by demand for increased space to work from home.

And another point could be added: the unequal distribution of wealth between the housing haves and have-nots is further supported by differential mortgage rates of less than 1 per cent if you have a 40 per cent deposit compared to 3-4 per cent if you only have 5 per cent and paying someone else’s mortgage if you are a renter.

Social housing tenants will by definition have missed out on that increase in housing wealth and are also far less likely to be members of the Zooming classes who have been able to work from home and save money.

And they will also be disproportionately affected by the government’s decision to end the £20 a week uplift in Universal Credit from the end of September.

But there is also a deeper point here that connects to trends seen since the financial crisis whereby austerity and cuts in benefits were justified in the name of keeping interest rates low and those low rates made mortgages cheaper but house prices more expensive for anyone who did not already own.

As the Resolution Foundation points out, this represents a powerful additional argument for keeping the Universal Credit uplift (aka returning it to more like the levels originally intended before the Treasury  got its hands on it).

At the other end of the scale, the report also provides food for thought for anyone in the government trying to work out what on earth ‘levelling up’ means. With the exception of London, rising house prices have disproportionately benefited the South East and South West over the North and Midlands.

Finally, as state support for the economy starts to be withdrawn and the Treasury looks for ways to restore the public finances, all this raises a whole series of questions about who should be picking up the bill.

Adjusted for inflation, household wealth has more than doubled since 1980 but revenue raised by taxes on wealth has stayed roughly the same – so the tax rate on wealth has effectively halved.

Reform of our creaking and illogical system of property taxation enjoys support across the political spectrum, most recently by the right-leaning think tank Bright Blue, but it still seems a step too far for politicians in power.

On the evidence so far, though, the burden is most likely to fall precisely on those who have missed out on rising wealth during the pandemic.


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