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

Odran Bonnet, Pierre-Henri Bono (), Guillaume Chapelle and Etienne Wasmer
Additional contact information
Pierre-Henri Bono: Sciences Po - Sciences Po

SciencePo Working papers from HAL

Abstract: 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.

Date: 2014-04-01
Note: View the original document on HAL open archive server: https://sciencespo.hal.science/hal-03460508v1
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://sciencespo.hal.science/hal-03460508v1/document (application/pdf)

Related works:
Working Paper: Does housing capital contribute to inequality? A comment on Thomas Piketty’s Capital in the 21st Century (2014)
Working Paper: Does housing capital contribute to inequality? A comment on Thomas Piketty’s Capital in the 21st Century (2014)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hal:wpspec:hal-03460508

Access Statistics for this paper

More papers in SciencePo Working papers from HAL
Bibliographic data for series maintained by Contact - Sciences Po Departement of Economics ().