Abstract
The sub-title of the book, the housing wealth of nations, draws attention to the central concerns of this edited collection of papers. The book provides a major contribution to the ongoing debates about homeownership and its role in wealth accumulation and use. In 25 chapters, detailed evidence and analysis of the the risks and benefits that shape the accumulation of wealth via ownership of housing are provided. The book begins with the claim that at the dawn of the twenty-first century, on the crest of a wave of home price-appreciation, the wealth of nations appeared to be accumulating faster through housing than in any other way (Smith et al., p. 1).
However, this is not true of all countries, but is specifically the case in the ‘home ownership societies’ of north-western Europe (especially the UK), North America, Australia and New Zealand. It is these countries that then form the focus of the book’s 25 chapters. Twelve years into the new century, and with the end of the housing boom in 2007, and the subsequent financial markets’ disruption and new austerity measures being imposed across the globe, there exists less optimism now that housing wealth is as durable as was previously believed. The risk attached to housing investment has been revealed, attracting more attention and leading to a range of new financial instruments and investment options being advocated. This theme is taken up in the final part of the book where measures to mitigate housing risk are examined, focussing especially on the role that could be played by derivatives and the creation of new financial markets surrounding housing through the creation of such derivatives (see ch. 19–25).
The book examines these broad themes through a three-part structure. Part 1 examines the “relationship between home prices, mortgage debt, and the wider economy and circumstances in which housing dynamics have a stabilizing or destabilizing effect” (p. 32). This part consist of eight chapters with the first two chapters (chs 2 and 3) looking at an OECD perspective and the trends in the US, the UK, Australia and Canada. Questions raised include how much equity has been released as values rise, how it is used and the effects on long-term wealth accumulation. The chapters show the significance of understanding the relationship between savings and wealth in shaping accumulation and thus the impact on overall investment. Important in shaping the behaviour of homeowners has been a greater financial liberalisation and institutional changes, and the willingness of financial institutions to remortgage and allow equity extraction during housing boom years when they were convinced, as were homeowners, that the boom was likely to continue and deliver ever-increasing ‘values’. The next five chapters in this first part investigate in more depth the experience of house prices and household debt and the extent of wealth extraction that has taken place. The countries examined here are the US, the UK, Australia and New Zealand. The more detailed studies are important as although there are some similarities there are also differences, drawing attention to the fact that not all housing markets operate in the same way—in part due to the differing political, social and cultural conditions within which they are embedded. These factors are ones that are not traditionally explored by mainstream economic analysis. There is considerable scope for further examination of these characteristics of housing markets as housing as a commodity is very different from other commodities in that it is not consumed in its use and it can increase rather than decrease in value. Furthermore, housing has a varied set of use values that also confound conventional market analysis. Strengthening these aspects of the analysis here would have required contribution from a wider range of housing researchers than is reflected in the current book. In the final chapter of this section, attention is drawn to the need to examine the nature of the housing system and a warning against reductionism from a focus entirely resting on the macro and micro aspects of the market. Such a broader approach would enable more understanding of the design and implementation of housing policy and the institutional arrangements put in place for its delivery.
The second part contains nine chapters examining housing wealth as a financial buffer. In the regions focused upon in the book, housing wealth is the major household asset; thus the relationship between housing wealth, mortgage debt and consumption are central. One of the debates that has emerged is whether the increased asset base provided becomes a source of income at older age to boost retirement incomes. Much of this accumulation depends on how wealth increases as debt is paid down and capital gains are sustained. Markets provide booms and slumps; thus gains are not always assured or without risk. The extraction through the life-course impacts on equity. With the increased use of equity extraction, the chapters show how the assured wealth can be dissipated through the life-course and thus provide less than previously assumed would be available in older age. These themes are explored through chapters that focus on Australia (chs 10, 11, 14), Spain (ch. 12,), the UK (ch. 15) and the US (chs 16 and 17). Chapter 17 valuably brings attention to the inequalities in wealth generation with respect to race in the US even with the advent of ‘risk-based pricing’ that was considered to be a vehicle for eliminating discrimination. Inequalities thus may be exacerbated when reliance is placed on accumulation through owner-occupation as access to this tenure is shaped by income access to finance, affordability, race, gender, and life-course experience. The final chapter in this section turns to the examination of the development of capital markets and income securitisation, new types of mortgage contract and greater internationalisation of finance. This results in volatility in housing finance and the rapid transferring of ‘crises’ from one country to another as illustrated in the sub-prime financial collapse in 2007 and the end of the housing boom, raising the spectre of losses rather than capital gains for homeowners. This change has reinforced an interest in housing risks and their mitigation which is taken up in the third section of the book.
The third part focuses upon housing risks and value that could be gained from developing new derivatives and markets to allow them to be traded. Such approaches are seen as one way to improve affordability and limit risk-taking by homeowners as the equity can be shared between the owner and potential investors. The chapters provide a range of such derivatives that have been developed and advocated in recent years, but have as yet not been widely adopted (nor has a market for such derivatives been developed). In part, this may reflect the more uncertain financial environment that has resulted from the post-2007 financial crisis. To understand fully the resistance to such schemes requires the analysis to move wider than the economics of housing wealth to understand the complex nature of housing and its embedding in a set of social, cultural and political practices, drawing on the work of those who have studied the multifaceted meanings attached to home in different countries and locales.
The book is a valuable contribution to a range of significant ongoing debates about the role of homeownership and the extent to which this can form the basis of assets-based welfare regimes. Underlying such arguments is the need to know what are the risks and benefits of this form of tenure and how much wealth is stored rather than used through the life-course. Further, it is important to understand the distributional and equity dimension of the impact of homeownership which has often been favoured politically through taxation policies that are not tenure-neutral. Unravelling these still requires further research and analysis and the shift in framing to the housing system as a whole rather than market forces. The present work provides an important step towards the exploration of these wider dimensions.