Press Story

“Your house has outvalued you this century”: House prices have tripled since 2000, while earnings only doubled

Life chances increasingly dependent on inheritance rather than hard work, says report

Policies beyond wealth taxes needed to deal with wealth inequality and revive social mobility

The pressing social and economic challenge posed by wealth inequality in the UK is today freshly analysed in a new Institute for Public Policy Research paper.

Wealth, which is increasingly accumulated through rising property values, has grown disproportionately compared to wages. New analysis by the think tank reveals that, for most people, their homes have outpaced their earnings this century, with house prices more than tripling since 2000, while individual employee earnings have only doubled.

The paper, which says we are in an era of ‘big wealth’ with a high private wealth to national income ratio, warns that without intervention, the divide between the ‘have-a-lots' and the ‘have-nots’ risks solidifying social and economic divides, blocking opportunities for millions.

No starker example of the wealth divide exists than the collapse of home-buying in the 21st century. As house prices have soared, there has been a “swing” of more than 10 percentage points across the entire working-age population, away from home-buying with a mortgage and towards private rentals, which are often costly and insecure.

Over the past 20 years, the proportion of 35 to 64 year-olds in private rented accommodation has almost tripled. It has almost doubled for 25 to 34 year-olds, and grown from 46 per cent to 74 per cent for 16 to 24 year-olds.

According to the latest official data, the wealthiest 10 per cent own around half of all wealth, while the bottom 30 per cent own little more than £1 in every £100.

Demographic analysis shows those in the southeast, men, and white people are on average wealthier than their counterparts.

Economic progress and financial security now depend relatively more on inherited wealth and relatively less on individual work, undermining the social mobility traditionally achieved through employment.

For those born in the 1960s, inheritances typically represent a boost worth 8 per cent of average earnings, for the 1980s cohort that is projected to rise to 14 per cent. Those on the wrong side of this divide can no longer catch up by putting in longer shifts.

The report makes a key new distinction between what it calls ‘good wealth’ and ‘bad wealth’. For example, wealth derived merely from owning land or other scarce commodities, and divorced from the production of any new value, is bad wealth, while wealth derived from the creation of a new asset, is compatible with a sustainable environment or creates good jobs, is good wealth.

The report argues that current approaches to social mobility are reaching their limits. If life chances depend less on education and more on inheritance, policy must adapt accordingly. The paper proposes three ways to tackle the problems of unproductive ‘Big Wealth’:

Making Big Wealth pay its way: by shifting the overwhelming reliance of tax revenue from income towards wealth, for example by increasing inheritance tax

Adapting to Big Wealth: by strengthening the social safety nets – such as affordable housing, public services and adult social care – to reduce the exposure of for low-wealth households

Differentiating between ‘good wealth’ and ‘bad wealth’: to deliver policies that support wealth derived from productive and sustainable assets instead of wealth accumulated through inflationary gains on property and finance

Tom Clark, author of the IPPR report, said:

“Wealth begets wealth, and the children of the very wealthy don’t just inherit more, but thanks to gold-plated education, introductions to the right social circles and financial cushioning that enables them to take more chances in their careers, they will also earn more and have better life chances to spend their time as they wish.

“The first budget of the new Labour government took a few extremely tentative steps to address some of the issues associated with ‘Big Wealth’, and even that is running into an almighty backlash. However the reality is that a lot more still needs to be done.”

Lord Adair Turner, former chairman of the FSA and former director-general of the CBI, said:

"Too often analysis of inequality focusses just on income. But one of the most striking features of capitalist economies in the late twentieth and early twenty first centuries is the rise of wealth/income ratios, driven in particular by rising property and land values. And since wealth is far more unequally distributed than income that has huge implications for the economic opportunities of different groups of people. There are no easy answers to the problems this creates – but the first step is to recognise how profound a change has occurred."

Dr Parth Patel, associate director at IPPR, said:

“Anaemic growth, low wages, ageing demographics, the financial crash and the pandemic mean UK politicians need to find an alternative tax base to squeezed wage packets.

“For most, your house has outvalued you this century – making wealth the new work. It’s time for a fairer tax system that can redistribute wealth more effectively and fund the public services we all rely on. Otherwise, we risk cementing a divided society for generations to come.”

ENDS

Tom Clark and Dr Parth Patel are available for interview

CONTACT

Liam Evans, Senior Digital and Media Officer: 07419 365334 l.evans@ippr.org

David Wastell, Director of News and Communications: 07921 403651 d.wastell@ippr.org

NOTES TO EDITORS

The IPPR paper, Earning vs owning: Rescuing opportunity in the asset economy by Tom Clark, will be published at 00:01 on Wednesday 27 November 2024. It will be available for download at: https://www.ippr.org/articles/earning-vs-owning
Advance copies of the report are available under embargo on request
Report author Tom Clark is a journalist specialising in social science, and a Contributing Editor at Prospect magazine.
Analysis of earnings is based on the Average Weekly Earnings series from the ONS, whereas the house price analysis is based on the OECD ‘Nominal House Price Indices’, though very similar results are obtained by using the ONS House Price Index (HPI)
IPPR (the Institute for Public Policy Research) is an independent charity working towards a fairer, greener, and more prosperous society. We are researchers, communicators, and policy experts creating tangible progressive change, and turning bold ideas into common sense realities. Working across the UK, IPPR, IPPR North, and IPPR Scotland are deeply connected to the people of our nations and regions, and the issues our communities face. We have helped shape national conversations and progressive policy change for more than 30 years. From making the early case for the minimum wage and tackling regional inequality, to proposing a windfall tax on energy companies, IPPR’s research and policy work has put forward practical solutions for the crises facing society. www.ippr.org