The two-part study for the Association of British Insurers analysed the savings behaviour of households with a mortgage, using the British Household Panel Survey. It found a decline in those households’ saving rate which, other things being equal, left them with a 15% lower private pension income at retirement.
UK households hold a larger share of their wealth in the form of housing than many other advanced economies, but concerns have been that the housing market is about to slow. People who have relied on being able to downsize, or sell a second home to fund a retirement may find that option is closed off in future.
The researchers looked at the potential cost to the economy of households holding such an unusually large share of their wealth in unproductive housing assets. It found that it was having a detrimental effect on GDP growth and job creation.
In one scenario, they assumed that the composition of investment between business and housing becomes more similar to other OECD advanced countries, with business investment increasing from 66% to 80% by 2028. With total private investment held constant, this would see productivity become 2.3% higher and GDP £55bn higher in 2028 than it would have been otherwise, equivalent to an extra 160,000 jobs.
In a second scenario, private investment was also increased from 14.2% to 16.8% in 2028, again more in line with other advanced economies, with the result being UK productivity 3.8% higher than it would have been otherwise, GDP £90bn higher and GDP growth predicted to be 2.1% rather than 1.7%, generating an additional 220,000 jobs.
Dr Monique Ebell, NIESR’s associate research director who co-authored the report, 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 as a whole.
“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.”