Multidimensional Wealth Inequality: A Hybrid Approach toward Distributional National Accounts in Europe

Distributional National Accounts (DINA) link macroeconomic aggregates with distributional information enabling a better understanding of distributional implications of macroeconomic developments and facilitate cross-country comparisons of inequality. This article proposes a practically feasible framework to allocate components of wealth to different sections of society and serves two functions: a comprehensive measure of net worth and its distribution, and a link to macroeconomic statistics. The article compiles DINA by breaking down twelve components of marketable wealth by wealth and income groups, as well as three major functions of wealth for Austria, Finland, France, Germany and Spain. The three functions of wealth considered are (i) precautionary saving, (ii) own use of housing assets and (iii) income generation via the ownership of businesses or landlordship. The resulting multidimensional wealth distributions reveal large heterogeneity in inequality and help understand (institutional) differences across countries and time. Results are top-tail adjusted using Pareto and Generalized Pareto models, and combining survey data (HFCS) with rich lists, or top wealth shares derived from tax data and leaked information on wealth held in offshore tax havens.Series: INEQ Working Paper Serie

Tracking Owners' Sentiments: Subjective Home Values, Expectations and House Price Dynamics

Economic theory predicts that expectations on future house price growth are related to the current price of a house. We test this relationship for the supply side of the secondary housing market using micro data that links individual expectations to a subjective owner estimated value (OEV). We find a strong causal relationship that optimistic expectations indeed imply higher OEVs as compared to neutral or pessimistic expectations. We find qualitatively and quantitatively consistent results for Italy and the US as well as for booming and gloomy years. Our results survive ample robustness checks. Since we use subjective data on house prices, we first show that OEVs are indeed a valid source to study house price dynamics by performing three types of convergent validity tests. We find that price dynamics derived by either combining OEVs and dwelling characteristics, or making use of repeatedly provided OEVs by the same owner over time reproduce objectively measured market trends strikingly well – even over decades. In contrast, OEVs and objective data tend to differ in levels – potentially due to psychological bias. These results hold for a large set of countries. We hence conclude that the "wisdom of the home-owner crowd" is sufficient to study house price dynamics but OEVs are less suited for measuring the level of market prices.Series: Department of Economics Working Paper Serie

Housing Rent Dynamics and Rent Regulation in St. Petersburg (1880-1917)

This article studies the evolution of housing rents in St. Petersburg between 1880 and 1917 covering an eventful period of Russian and world history. We collect and digitize over 5,000 rental advertisements from historic newspapers, which we use together with geo-coded addresses and detailed structural characteristics to construct a quality-adjusted rent price index in continuous time. We provide the first pre-war and pre-Soviet index based on market data for any Russian housing market. In 1915, one of the world's earliest rent control and tenant protection policies was introduced as a response to soaring prices following the outbreak of World War I. We analyze the impact of this policy: while before the regulation rents were increasing at a similar rapid pace as other consumer prices, the policy reversed this trend. We find evidence for official compliance with the policy, document a rise in tenure duration and strongly increased rent affordability among workers after the introduction of the policy. We conclude that the immediate prelude to the October Revolution was indeed characterized by economic turmoil, but rent affordability and rising rents were no longer the prevailing problems.Series: Department of Economics Working Paper Serie

Owner Occupied Housing in the CPI and its Impact on Monetary Policy during Housing Booms and Busts

The treatment of owner-occupied housing (OOH) is probably the most important unresolved issue in inflation measurement. How -- and whether -- it is included in the Consumer Price Index (CPI) affects inflation expectations, the measured level of real interest rates, and the behavior of governments, central banks and market participants. We show that none of the existing treatments of OOH are fit for purpose. Hence we propose a new simplified user cost method with better properties. Using a micro-level dataset, we then compare the empirical behavior of eight different treatments of OOH. Our preferred user cost approach pushes up the CPI during housing booms (by 2 percentage points or more). Our findings relate to the following important debates in macroeconomics: the behavior of the Phillips curve in the US during the global financial crisis, and the response of monetary policy to housing booms, secular stagnation, and globalization.Series: Department of Economics Working Paper Serie

Forward to the Past: Short-Term Effects of the Rent Freeze in Berlin

In 2020, Berlin enacted a rigorous rent-control policy: the “Mietendeckel” (rent freeze), aiming to stop rapidly growing rental prices. We evaluate this newly enacted but old-fashionably designed policy by analyzing its immediate supply-side effects. Using a rich pool of rent advertisements reporting asking rents and comprehensive dwelling characteristics, we perform hedonic-style Difference-in-Difference analyses comparing trajectories of dwellings inside and outside the policy’s scope. We find no immediate effect upon announcement of the policy. Yet advertised rents drop significantly upon the policy’s enactment. Additionally, we document a substitution effect affecting the rental markets of Berlin’s (unregulated) satellite city Potsdam and adjacent smaller municipalities. On top, the supplemental quantity analyses reveal a stark reduction of the number of advertised rental units hampering a successful housing search for newcomers, (young) first-time renters and tenants aiming for a different housing opportunity.Series: Department of Economics Working Paper Serie

Wealth Inequality: A Hybrid Approach Toward Multidimensional Distributional National Accounts In Europe

This article proposes a practically feasible framework for compiling Multidimensional Distributional National Accounts (MDINAs) serving two functions: a comprehensive measure of (components of) net worth and their distribution, and a link to macroeconomic statistics. I break down 12 components of marketable wealth by wealth and income groups, and three functions of wealth for Austria, Finland, France, Germany, and Spain. MDINA complemented by summary indicators reveal large heterogeneity in the degree of inequality, and shed light on differences in the structure of wealth portfolios across and within countries. I combine data collected in the largely harmonized HFCS survey and adjust for remaining differences in survey modes regarding the treatment of the top tail using (Generalized) Pareto models estimated from rich lists or top wealth shares derived from tax data and leaked information on wealth held in offshore tax havens. Measured inequality increases strongest in countries where surveys refrain from appropriate top‐tail corrections.</jats:p

Missing the wealthy in the HFCS: micro problems with macro implications

AbstractWealth aggregates implied by the Household Finance and Consumption Survey (HFCS) usually yield much lower amounts than macroeconomic statistics reported in the National Accounts. An important source of this gap may be the under-representation of the wealthiest households in the HFCS. This article therefore combines a semi-parametric Pareto model estimated from top survey data and observations from rich lists with a non-parametric stratification approach to quantify the impact of the missing wealthy households on component-specific micro-macro gaps. We find that unadjusted micro data substantially underestimates wealth inequality. The largest effects are documented for equity. For other components, the missing wealthy explain less than ten percentage points of the micro-macro gap. We find that differences in oversampling strategies limit the cross-country comparability of unadjusted survey-implied wealth distributions and that our top tail adjustment leads to measures that are internationally better comparable.</jats:p

Tracking Home-Owners’ Sentiments: Subjective Indices and Convergent Validity

Surveys regularly ask home-owners to guess what their property might be worth in the current housing market. We develop suitable statistical techniques to construct hedonic and repeat-sales style house price indices from these owner-estimated values (OEVs). The resulting series are then linked to a large set of quality-adjusted residential property price indices estimated from transaction data allowing us to perform a variety of convergent validity tests. Based on results for 20 countries, several decades and different OEV elicitation techniques, we conclude that the *“wisdom of the home-owner crowd”* is sufficient to study objective house price dynamics. Yet, surveys fail to accurately measure house price levels

Objective Housing Sales and Rent Prices in Representative Household Surveys: Implications for Wealth, Inequality, Housing Market and Affordability Statistics

Many economic analyses require hypothetical but realistic sales and rent prices for properties representative for the housing stock and reflecting current market conditions. To achieve this, we replace subjectively reported prices in a representative household survey in Luxembourg by objectified hedonic imputations informed by observable market data. Thus, we propose a powerful tool for assessing the health and affordability of housing markets, compiling housing-related statistics and simulating hypothetical scenarios. This approach also enables us to test for the reliability of survey responses. When switching to objectified values, we detect shifts in the wealth distribution, large regional variation in market indicators and striking affordability concerns: only 18% of Luxembourg’s renters could theoretically afford purchasing their inhabited dwelling given current market conditions. Further, participants’ tendency to mis-estimate market values strongly correlates with tenure length and type, dwelling type, income and wealth.FNR Luxembourg National Research Fund, CORE Grant No. 3886 (ASSESS

OBJECTIVE HOUSING SALES AND RENT PRICES IN REPRESENTATIVE HOUSEHOLD SURVEYS: IMPLICATIONS FOR WEALTH, INEQUALITY, HOUSING MARKET, AND AFFORDABILITY STATISTICS

Publication status: PublishedMany economic analyses require hypothetical but realistic sales and rent prices for properties representative of the housing stock and reflecting current market conditions. To achieve this, we replace subjectively reported prices in a representative household survey in Luxembourg with objectified hedonic imputations informed by observable market data. Thus, we propose a powerful tool for assessing the health and affordability of housing markets, compiling housing‐related statistics and simulating hypothetical scenarios. This approach also enables us to test for the reliability of survey responses. When switching to objectified values, we detect shifts in the wealth distribution, large regional variation in market indicators, and striking affordability concerns: only 18 percent of Luxembourg's renters could theoretically afford to purchase their inhabited dwellings given current market conditions. Further, participants' tendency to mis‐estimate market values strongly correlates with tenure length and type, dwelling type, income, and wealth.FNR Luxembourg National Research Fund, CORE Grant No. 3886 (ASSESS