Property obsession could be making UK poorer, NIESR says
Home ownership is crowding out other forms of long-term savings and investment with potentially damaging effects on pension savings and the wider UK economy, research suggests.
Households with a mortgage save less into pensions, resulting in a 15% lower private pension income at retirement, a study by the National Institute of Economic and Social Research found. NIESR said this could be a reason UK households have more wealth tied up in housing than those in many other advanced economies.
Britain has the lowest rate of business investment and one of the lowest labour productivity rates among advanced economies. Machinery, equipment, intellectual property and other business investments make up 9.2% of GDP with Spain the next lowest at 9.9% and all other advanced countries above 10%. Business's share of private investment is 66%, the third lowest behind Spain and Canada. The UK has the joint lowest productivity with Spain with Japan the lowest.
NIESR calculated that if the UK's business share of total investment increased to 80% by 2028 productivity would be 2.3% higher and GDP would rise by £55bn. If total private investment also increased from 14.2% to 16.8% over that period productivity would be 3.8% higher and GDP would rise by £90bn, the research, funded by the Association of British Insurers, found.
After years of government promises to rebalance the economy towards long-term investment and manufacturing, the UK property market continues to suck in private investment. The Bank of England has identified low productivity as the reason for the economy's reduced capacity for growth.
NIESR said the research suggested Britain's obsession with housing wealth was the country poorer. The government should consider changing incentives to make retirement savings more attractive compared with property.
Dr Monique Ebell, NIESR’s Associate Research Director, said: "This research helps us to understand how much UK households’ over-reliance on housing as a form of saving and investment is affecting their own income at retirement and the UK economy. Policy makers would do well to examine more closely the relationship between the UK’s long-standing productivity weakness and incentives to invest in housing rather than productive assets."