Are high home ownership countries wealthier?

As the exhibit shows, there’s evidently much more to a country’s level of home ownership than the wealth of its citizens. Germany is one of the richest countries on the list, yet its home ownership rate is 42% compared to 98% in considerably poorer Bulgaria.

I’ve taken this data from Wiki, but it’s similar to some numbers shown by Randal O’Toole at a policy forum, The death and life of affordable housing, run last week by US libertarian think tank, The Cato Institute.

The panel had some well known writers on how regulation affects cities, including the Institute’s Randal O’Toole (American nightmare), as well as Matt Yglesias (The rent is too damn high) and Ryan Avent (The gated city).

Early in the proceedings, O’Toole shows a PowerPoint slide of home ownership levels in various countries (at about 18:00). It’s essentially an aside to his main argument, but it illustrates the enormous variability in ownership rates across nations and, more particularly, that they’re not correlated strongly with income.

His slide includes some additional countries with higher home ownership rates than Australia (69%) i.e. Lithuania (96%), Mexico (83%), India (82%), Iran (81%) and Greece (80%). It also shows Switzerland, at 35%, has a lower proportion of owners than Germany.

Tyler Cowen at Marginal Revolution subsequently took up this topic and added a few more countries. Romania, Croatia and Slovakia all have home ownership rates which, at more than 90%, are well above Australia’s.

Matt Yglesias extended the discussion at his own site, Moneybox, adding some more countries. Iceland, Portugal, Chile, Israel, and Luxembourg also have higher rates than Australia, even though home ownership is as ingrained in the Aussie national mythos as kangaroos and cobbers.

Bear in mind there can be considerable differences in the dates at which the estimates are taken for each country, in some cases as high as ten years. Still, this is not the kind of variable that changes quickly, so the overall scale of differences shouldn’t be greatly affected.

Cowen and Yglesias make the point that, at least within Europe, the most economically challenged nations – generally former Communist countries – have the highest rates of home ownership, whereas the lowest rates are generally seen in the stronger economies.

Very high rates of home ownership are not necessarily incompatible with a strong economy though, as Singapore and Norway illustrate. Australia is another example of an economically robust country with a relatively high rate of ownership.

Yet contrary to the common assumption in Australia, home ownership is not a reliable measure of economic strength and it’s not a pre-condition. Nor of course is a low rate of ownership. Political factors are immensely important – for example, the high rates in former Communist countries are the result of a deliberate policy of privatisation.

From the point of view of someone seeking shelter, home ownership makes sense in Australia because it’s a subsidised way to significantly increase wealth with relatively low risk. It’s at least as much an investment decision as a shelter decision.

But like cars, high levels of home ownership are not a pre-condition for creating a country with a high material standard of living for its citizens.