House price boom reduces wealth inequality

Rising house prices in the period before the global financial crash had the effect of reducing overall wealth inequalities in Britain, according to a paper from LSE academics.

The paper looks at trends in the distribution of household wealth in Great Britain from 1995 to 2005, using longitudinal data from the British Household Panel Survey. It focuses on the role of ageing or life-cycle saving, and the gains and losses associated with the house price boom.

Key points

  • Wealth is very unevenly distributed, with a widening absolute gap over the period examined between wealthier households and those with no or negative wealth.
  • However, in relative terms, wealth grew by most for households in the middle of the distribution, and inequality measured by the Gini coefficient fell sharply (from 69 to 59 per cent over the period).
  • This trend mainly reflected an increase in housing wealth in the middle of the distribution, and housing wealth becoming a greater share of total wealth. Without the house price boom, the wealth distribution in 2005 would have been very similar to that in 1995.
  • Households that gained most from the house price boom were mortgagors – in particular those that had been initially wealthier, and were advantaged in other ways such as by level of educational qualification. The boom also benefited those in middle age compared with other age groups.

Source: Francesca Bastagli and John Hills, Wealth Accumulation in Great Britain 1995–2005: The Role of House Prices and the Life Cycle, CASEpaper 166, Centre for Analysis of Social Exclusion (London School of Economics)

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