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The Interplay Between the Upward Trend in Home-Ownership and Income Inequality in Advanced Welfare Democracies

Final Report Summary - HOWCOME (The Interplay Between the Upward Trend in Home-Ownership and Income Inequality in Advanced Welfare Democracies)

HOWCOME has analyzed the complex interplay between changes in the social production of housing by markets, states and families, and wider (non-housing) trends in social and economic inequality. Since the mid-1970s, processes such as post-industrialization, economic deregulation and globalization, labour market flexibilization, and demographic change have resulted in the emergence of so-called ‘new social risks’, whilst at the same time endangering the fiscal viability of welfare state arrangements covering the ‘old’ social risks. Welfare state restructuring and retrenchment resulted as a response. Taken together, increased exposure to risk combined with a decreased insurance against risk, have led to an upswing of economic inequality and poverty, with further negative impacts on a range of other social outcomes. Changes in the social production of housing by markets, states and families have been driven by more or less the same set forces, including a recalibration and retrenchment of post-war de-commodifying housing policies and state interventions. Following marketization tendencies since the 1970s, the 1980s heralded a qualitatively new and more pervasive era of commodification. As a new way of capital accumulation, national housing finance systems became more strongly integrated in the global economy, which in turn became increasingly dependent on the performance of local housing markets. Reflecting trends in the global economy, housing markets became ‘financialized’ – as both owner-occupied and rental homes became increasingly understood and traded as financial investment products. Whilst driven by a comparable set of ‘exogenous’ determinants, trends in social and economic inequality additionally impact ‘independently’ on the access to decent and affordable housing through resulting housing market dynamics, while housing market financialization can compound or counteract ‘non-housing’ social and economic inequalities. HOWCOME’s aim was to integrate theory and research from different disciplines – sociology, economics, political science, housing studies, and demography – in an effort to unravel social mechanisms exemplary for this intricate interplay between the upswing in inequality and changing housing regimes. Such social mechanisms connect different societal levels: Large-scale social changes are refracted through variegated institutional contexts, and connect to attitudes, beliefs, preferences and agency of households living in these institutional environments, and to the unfoldment of individual life courses through institutional/historical time – in turn leading to further social change.

Selected findings from the four subprojects are listed below:

INSTITUTIONS – This subproject has focused on the impact of macro-level (cross-country) differences in economic inequality (trends) vs. (changes in) housing regimes on aggregate outcomes in terms of the access to decent and affordable housing for different social/tenure groups, in particular low-income households. Dewilde & Lancee (2013) tested the argument that higher levels of income inequality, when controlling for economic affluence, are associated with housing market dynamics affecting low-income households’ housing outcomes. It was found that in countries with a higher level of income inequality, both low-income homeowners and private renters experience more crowding and housing quality deprivation, whereas low-income renters are also more often confronted with affordability problems. Further research has looked into the impact of housing regime change – in particular housing market financialization – on trends in aggregate housing outcomes, whilst controlling for trends in absolute and relative incomes, immigration and other relevant variables. Dewilde & De Decker (2016) found that between 1995 and 2012 (2007) with regard to housing affordability problems, in most countries the position of low-income respondents has deteriorated, both in absolute terms and relative to middle-income respondents. Whilst access to affordable housing remains more or less stable (and high) over time for middle-income groups, there was a noted decrease in affordability for low-income respondents. Both low-income owners ánd low-income private renters have lost ground compared to their middle-income counterparts, and for both groups the trend is explained by increases in the level of financialization of housing finance. The substantive finding for renters was fleshed out further in Dewilde (2016). In this paper the emerging literature on the financialization of housing was integrated in the ‘regular’ supply vs. demand framework that is used to explain affordability trends in the private rental sector. Again, evidence indicates that housing market financialization impacts negatively on the affordability of housing for low-income renters, in particular through rent increases, which are argued to arise from declining supply at the lower end of the housing market.

ATTITUDES – This subproject builds on, and contributes to, the somewhat older and disparate body of literature that analyzes social and political outcomes of homeownership. Empirical research concerning the social or political ‘effects’ of tenure on owner-occupiers has been plagued by normative biases and weak empirical designs, rendering it difficult to disentangle causation from selection. Through a combination of both methodological and substantive approaches to such selection bias, this project has built new theory – drawing on the conceptualization of homeowners’ changing interests in the house/housing wealth as a source of security vs. risk across contexts – and evidence. André & Dewilde (2016) found that across countries, homeowners are less supportive of government redistribution than renters. They also found that (contextual) housing provision arrangements have a socializing impact on welfare attitudes. While preferences for redistribution of owners and tenant are stronger and more similar as the level of outright home ownership becomes larger across countries (both prefer more redistribution), housing market financialization has the opposite effect, while also rendering homeowners significantly less sympathetic of social solidarity (compared with tenants), as housing markets are more financialized. André, Dewilde & Luijkx (2017) found a tenure gap in national electoral participation, whilst the positive estimate of ‘homeownership’ on voting varied in a systematic way across countries and housing regimes. Given the use of methodological strategies to deal with selection, it cannot be ruled out that homeowners are encouraged to vote through instrumental motivations related to perceived social status or homeownership-related (investment) considerations. This is supported by the finding that the tenure gap is highest in countries characterized by a strong pro-homeownership ideology, and/or where the financialization of housing markets turned owned homes into assets. André, Dewilde, Luijkx and Spierings (forthcoming) furthermore found – for the Netherlands – that tenure and housing wealth do not only influence voting, but also party choice.

LIFE COURSES – This subproject has focused on cross-country variations in housing wealth distributions, and how these arise from the interaction between life courses factors and institutional factors. Both types of factors have furthermore changed significantly in recent decades. Wind, Lersch & Dewilde (2016) find that – even though homeownership has increased across European countries – patterns of housing wealth distribution and accumulation across occupational classes are moderated by institutional (housing policy) arrangements. Contrary to the stated aims of their policies, in particular in countries with liberalized housing finance, housing wealth inequality distributions have become more unequal, as lower-class households have accumulated debt rather than wealth. This ‘downside’ of housing finance liberalization is for some however also an ‘upside’, for instance, when such arrangements allow homeowners to remain in or regain access to the tenure upon negative life events, such as divorce – be it at the cost of lower housing equity (Wind & Dewilde, 2016). Wind & Hedman (forthcoming) analyze the process of housing wealth accumulation in Sweden, which became one of the most liberal-governed housing markets in the European Union during the 1990s. They show how a more unequal development of house prices within urban regions has increased the importance of making ‘profitable’ residential decisions through ‘housing market navigation’, by focusing on capital gains and losses on the housing market of the 13 largest Swedish cities between 1995 and 2010. Selective redirection of housing pathways by households with higher economic and cultural capital has enlarged housing wealth inequality between natives and migrants, lower- and higher- educated, and lower- and higher-income groups due to divergent returns on their investments in housing. Finally, Wind & Dewilde (2017) show that the total wealth gap (housing and non-housing wealth) between owners and tenants across countries can be explained by the orientation of both the welfare system and the housing system, which impact on the user-cost of owning vs. renting, the necessity/opportunity to save, but also on the size and structure of the rental market, in particular the occurrence of (small-scale) private landlordism. As a consequences, tenure wealth gaps are largest in those countries where one would least expect them, such as Germany and Austria.

TRANSITIONS – The focus of this subproject was on homeownership transitions, such as exits from homeownership and ensuing later-life consequences (e.g. Dewilde, 2013; Dewilde & Stier, 2014), but in particular on entry into first-time homeownership. Lersch and Uunk (2016), for instance, found for the United Kingdom, that there is a positive association between wanting to move into homeownership and labour supply of both men and women. While employed men increase work hours once they develop a preference for homeownership, non-employed women are likely to start working. Women’s increased labour supply furthermore partly depends on increases in regional house prices. Even if individuals may eventually not be able to realize their housing goals, aspirations towards homeownership still positively affect labour supply. With regard to young people, Lersch and Dewilde (2015) have shown that employment insecurity impedes the entry into first-time homeownership across European countries. Employment insecurity is however particularly detrimental for young adults’ access to homeownership in market-oriented housing systems, especially those with a dual rental market. Declined access to (affordable) homeownership of young people may have increased the importance of intergenerational transfers for housing, which was the topic of several papers. In a comparative study for 10 European countries on homeownership entries between 1965 and 2009, Mulder, Dewilde et al. (2015) found that the intergenerational transmission of homeownership was indeed stronger in contexts (country-period-combinations) where homeownership is less affordable. This association is however less straightforward in the current era. For instance, for the United Kingdom, Dewilde, Hubers and Coulter (forthcoming) find that overall, the dominant trend throughout the 1990s-2000s (before and after the Great Financial Crisis) is a decline in or a postponement of transitions into homeownership (resulting in strong increases in private renting), rather than a strengthening of parental transfers for homeownership. This could be because the scale and impact of parental support for young adults’ homeownership has been overstated in public debates.