Does housing capital contribute to inequality? A comment on Thomas Piketty’s Capital in the 21st Century - Sciences Po
Pré-Publication, Document De Travail Année : 2014

Does housing capital contribute to inequality? A comment on Thomas Piketty’s Capital in the 21st Century

Résumé

In his book, Capital in the 21st Century,Thomas Piketty highlights the risk of an explosion of wealth inequality because capital is accumulating faster than income in several countries including the US and European countries such as France. Our work challenges the conclusions of the author in three steps. First, the author’s result is based on the rise of only one of the components of capital, namely housing capital,and due to housing prices. In fact, housing prices have risen faster than rent and income in many countries.It is worth noting that “productive” capital, excluding housing, has only risen weakly relative to income over the last few decades. Over the longer run, the “productive” capital/income ratio has not increased at all. Second, rent, not housing prices, should matter for the dynamics of wealth inequality, because rent represents both the actual income of housing capital for landlords and the dwelling costs saved by “owner-occupiers” (people living in their own houses). Logically, to properly measure capital, the value of housing capital must be corrected by measuring it on actual rental price, and not housing prices. Third, when we apply this change, we find that the capital/income ratio is actually stable or only mildly higher in the countries analyzed (France, the US, the UK, and Canada) except for Germany where it rose. These conclusions are exactly opposite to those found by Thomas Piketty. However, this does not mean that housing prices do not contribute to other forms of inequality. When housing prices rise, owners of the housing capital hold a higher value that can be transformed into consumption. It is also more difficult for young adults to become homeowners. Housing incomes of owners however do not necessarily increase which casts serious doubt on Piketty’s conclusion of a potential explosive dynamics of inequality based on these trends.
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hal-03460508 , version 1 (01-12-2021)

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Odran Bonnet, Pierre-Henri Bono, Guillaume Flamerie de La Chapelle, Etienne Wasmer. Does housing capital contribute to inequality? A comment on Thomas Piketty’s Capital in the 21st Century. 2014. ⟨hal-03460508⟩
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