The big increase in housing wealth inequality in the UK over the period from 1995 to 2007 increased homeowners’ probability of supporting the Conservative party. However, it did not make homeowners more averse to the state’s ownership of public services.
These are the findings of research by Marta Schoch, to be presented at the Royal Economic Society's annual conference at the University of Warwick in April 2019. The new study investigates the effect of the increase in housing wealth inequality on the political preferences of homeowners relative to renters.
Homeowners in England and Wales saw the value of their properties increase significantly during the housing price boom between 1995 and 2007. House prices at least doubled in four regions, and tripled in the three southern regions, with London experiencing a more than threefold increase in prices.
This study analyses whether the increase in housing wealth inequality, indicated by the increasing gap in housing value between homeowners and renters, affected the political preferences of the two groups. The rationale behind this comes from research on inequality and preferences for redistribution (Alesina and La Ferrara, 2009; Barth and Moene, 2016).
In a nutshell, homeowners might change their preferences for taxation as the value of their property increases. In other words, they might want to pay less taxes on their property, resulting in lower public spending and government intervention in the economy, as they are less likely to be dependent on public services compared with renters. This change in preferences should translate into increased support for the Conservative party in this context, and into a decrease in support for state ownership of public services.
By comparing the political preferences of homeowners and renters, the research finds that house price shocks affect the probability of supporting the Conservative party. A 10% increase in house prices increases the probability of homeowners supporting the Conservative party by two percentage points or 5% on average. But this increase in support is not accompanied by a change in support for the role of the government in the economy.
The only exception is for owners of less expensive properties, who increase their support for the public sector as house prices increase in their county. This plausibly reflects a greater interest in the provision of public services by less wealthy homeowners.
The key insight of this research is that housing wealth inequality affects homeowners’ political preferences by increasing the probability of supporting the Conservative party, but not by making homeowners more averse to the role of the governme
nt in the public sector.
Previous research has shown that wealth shocks benefiting homeowners can have important effects, among others, on health (Fichera and Gathergood, 2016), and labour supply (Disney and Gathergood, 2018).
‘Wealth inequality and political preferences: evidence from the housing price boom in England and Wales by Marta Schoch