Most ‘Wealth’ Isn’t the Result of Hard Work. It Has Been Accumulated by Being Idle and Unproductive.

It’s time to call the housing crisis what it really is: the largest transfer of wealth in living memory.

Share with your friends

More share buttons
Share on Pinterest

By Laurie Macfarlane

One of the basic claims of capitalism is that people are rewarded in line with their effort and productivity. Another is that the economy is not a zero sum game. The beauty of a capitalist economy, we are told, is that people who work hard can get rich without making others poorer.

But how does this stack up in modern Britain, the birthplace of capitalism and many of its early theorists? Last week, the Office for National Statistics (ONS) released new data tracking how wealth has evolved over time. On paper, the UK has indeed become much wealthier in recent decades. Net wealth has more than tripled since 1995, increasing by over £7 trillion. This is equivalent to an average increase of nearly £100,000 per person. Impressive stuff. But where has all this wealth come from, and who has it benefitted?

Get Evonomics in your inbox

Just over £5 trillion, or three quarters of the total increase, is accounted for by increase in the value of dwellings – another name for the UK housing stock. The Office for National Statistics explains that this is “largely due to increases in house prices rather than a change in the volume of dwellings.” This alone is not particularly surprising. We are forever told about the importance of ‘getting a foot on the property ladder’. The housing market has long been viewed as a perennial source of wealth.

But the price of a property is made up of two distinct components: the price of the building itself, and the price of the land that the structure is built upon. This year the ONS has separated out these two components for the first time, and the results are quite astounding.

In just two decades the market value of land has quadrupled, increasing recorded wealth by over £4 trillion. The driving force behind rising house prices — and the UK’s growing wealth — has been rapidly escalating land prices.

For those who own property, this has provided enormous benefits. According to the Resolution Foundation, homeowners born in the 1940s and 1950s gained an unearned windfall of £80,000 between 1993 and 2014 alone. In the early 2000s, house price growth was so great that 17% of working-age adults earned more from their house than from their job.

Last week The Times reported that during the past three months alone, baby boomers converted £850 million of housing wealth into cash using equity release products – the highest number since records began. A third used the money to buy cars, while more than a quarter used it to fund holidays. Others are choosing to buy more property: the Chartered Institute of Housing has describedhow the buy-to-let market is being fuelled by older households using their housing wealth to buy more property, renting it out to those who are unable to get a foot on the property ladder. And it is here that we find the dark side of the housing boom.

As house prices have continued to increase and the gap between house prices and earnings has grown larger, the cost of homeownership has become increasingly prohibitive. Whereas in the mid-1990s low and middle income households could afford a first time buyer deposit after saving for around 3 years, today it takes the same households 20 years to save for a deposit. Many have increasingly found themselves with little choice but to rent privately. For those stuck in the private rental market, the proportion of income spent on housing costs has risen from around 10% in 1980 to 36% today. Unlike homeowners, there is no asset wealth to draw on to fund new cars or holidays.

In Britain, we have yet to confront the truth about the trillions of pounds of wealth amassed through the housing market in recent decades: this wealth has come straight out of the pockets of those who don’t own property.

When the value of a house goes up, the total productive capacity of the economy is unchanged because nothing new has been produced: it merely constitutes an increase in the value of the land underneath. We have known since the days of Adam Smith and David Ricardo that land is not a source of wealth but of economic rent — a means of extracting wealth from others. Or as Joseph Stiglitz puts it “getting a larger share of the pie rather than increasing the size of the pie”. The truth is that much of the wealth accumulated in recent decades has been gained at the expense of those who will see more of their incomes eaten up by higher rents and larger mortgage payments. This wealth hasn’t been ‘created’ – it has been stolen from future generations.

House prices are now on average nearly eight times that of incomes, more than double the figure of 20 years ago. It’s unlikely that house prices will be able to outpace incomes at the same rate for the next 20 years. The past few decades have spawned a one-off transfer of wealth that is unlikely to be repeated. While the main beneficiaries of this have been the older generations, eventually this will be passed on to the next generation via inheritance or transfer. Already the ‘Bank of Mum and Dad’ has become the ninth biggest mortgage lender. The ultimate result is not just a growing intergenerational divide, but an entrenched class divide between those who own property (or have a claim to it), and those who do not.

Misleading accounting and irresponsible economics have provided cover for this heist. The government’s national accounts record house price growth as new wealth, ignoring the cost it imposes on others in society – particularly young people and those yet to be born. Economists still hail house price inflation as a sign of economic strength.

The result is a world which is rather different to that described in economics textbooks. Most of today’s ‘wealth’ isn’t the result of entrepreneurialism and hard work – it has been accumulated by being idle and unproductive. Far from the positive sum game capitalism is supposed to be, we have a system where most wealth is gained at the expense of others. As John Stuart Mill wrote back in 1848:

“If some of us grow rich in our sleep, where do we think this wealth is coming from?  It doesn’t materialise out of thin air. It doesn’t come without costing someone, another human being. It comes from the fruits of others’ labours, which they don’t receive.”

Britain’s housing crisis is complicated mess. Fixing it requires a long-term plan and a bold new approach to policy. But in the meantime let’s start calling it what it really is: the largest transfer of wealth in living memory.

Originally published on Open Democracy here.

2017, November 13

Donating = Changing Economics. And Changing the World.

Evonomics is free, it’s a labor of love, and it's an expense. We spend hundreds of hours and lots of dollars each month creating, curating, and promoting content that drives the next evolution of economics. If you're like us — if you think there’s a key leverage point here for making the world a better place — please consider donating. We’ll use your donation to deliver even more game-changing content, and to spread the word about that content to influential thinkers far and wide.

 $3 / month
 $7 / month
 $10 / month
 $25 / month

You can also become a one-time patron with a single donation in any amount.

If you liked this article, you'll also like these other Evonomics articles...


We welcome you to take part in the next evolution of economics. Sign up now to be kept in the loop!

  • Farmer Giles

    Mrs. Macfarlane once again lays out the case for the greediest generation… Generation ME! My pet peeve is the career theft. It is widely reported that so called “administrative” jobs have exploded in recent decades, leading to huge increases in the price of everything from education to entertainment to groceries. Who holds these “administrative” jobs? Baby Boomers of course, and don’t expect them to step aside -no thank you. It our time now! (they say).

    I am often struck by the stark contrast, at least here in America, between the Baby Boomer generation and their parents, what we call the, “Greatest Generation.” These people, the few who are still around, seem so oriented towards providing something for society, leaving something for their children… such a contrast!

    Of course, I don’t think Baby Boomers are evil. I don’t think they sit around in smoke filled rooms planning this “generational theft.” Of course not, they are, simply, like the vast majority of people, oblivious. The Government says that Capitalism proves that they earned whatever wealth they can lay claim to, and that is good enough for them. They just don’t think about it any further. Meanwhile, a bunch of loser Gen Xrs and whinny Millennials sit around reading great articles like this… but do nothing about it.

  • A Guitar

    This article is such utter nonsense, I almost don’t really know where to start.

    How about, the fact that the writer doesn’t mention that House price inflation has actually been driven by the fall in the cost of borrowing.

    In the 80’s my £20k mortgage cost around £265 monthly, interest rates peaked at about 16.5%.

    The same mortgage now costs me £25 monthly at 1.25%.

    That means I could borrow over ten times as much for the same payment.

    House prices have nothing to do with multiples of average incomes, because that does not affect what the monthly repayment is. It is interest rates that affect that, and the market has simply adjusted to the change.

    I am not saying it is a good thing, or that it is easy for young people. But I can assure you it wasn’t then either !!!

    The Economics profession has been massively politicised to the point where they believe the sort of tosh written in this article. Of course don’t get me started on the Brexit forecasts lies of the same liberal elite economists.

    • Critical Inquirer

      Hmmm I’m not sure you read the whole article Mr Angry Middle Aged HTFU Young People Brexiteer. The point is that the proportion of earnings consumed by RENT has more than tripled since the 80s (something barely helped by regional house price variances as these are largely in line with regional and sectoral earnings, something which you ignore for some reason) and this has a sclerotic knock on effect to the rest of the economy (hence why personal debt is at an all time high – another form of wealth extraction in an increasingly RENTIER economy). The current low cost of servicing a mortgage is neither here nor there if you are forced into renting in the first place, and your comments about scrimping and saving tp buy are economically illiterate and also illustrate the fundamental structural weakness of an asset bubble led market – if liquidity in the economy slows because people stop spending in order to save up for an unproductive asset, then all the jobs, incomes and taxes which rely on people spending suffer too.

      As for your comment on Brexit forecasts..well, it hasn’t happened yet, has it? Let’s just see how it pans out…I’m sure people like you will find every conspiratorial reason to blame anyone and anything other than the verifiable evidence of intractable reality in front of your own selectively biased nose

      • A Guitar

        This response is such absolute nonsense its not even worthy of a detailed response. I suspect the author is drunk on Liberal Left brainwashing . The clue of course is in the rude name calling, not to mention the illiterate economics (if people stop spending in order to save then all the jobs incomes and taxes suffer too – oh so nobody should ever save) ….lunacy.

        I obviously hit a nerve a little too close to home.

        PS. keep you ageist and other offensive opinions to yourself.

        • Critical Inquirer

          I love the way people bandy the words “illiterate” and “economics” around based on their intuitive but entirely incorrect view of macroeconomics. So you think that jobs and the resulting tax base wouldn’t be affected if everyone stopped spending? Really?

      • Victor

        “if liquidity in the economy slows because people stop spending in order
        to save up for an unproductive asset, then all the jobs, incomes and
        taxes which rely on people spending suffer too.”

        Seems wrong to me. People who pay rent, spend less, but people who receive rent, spend more, so there is an equilibrium in terms of jobs income and taxes.

        As to who should spend more and who should spend less, its a philosophical question, in the end we all end in the same grave, no matter were you a renter eating ramen every day or a landlord eating fine cuisine.

        As to the inheritance, people are allowed to pass big t*ts and long d*cks to future generations, right? Why shouldn’t they also be allowed to pass wealth?

    • Bosh

      With respect to you’re talking out of your bottom. Just take into account the fact that a property is £400,000 where as it used to be £30,000 – that £400,000 divided by the number of months and you have the amount of capital repayment due. Whilst the interest is lower, the actual svr on most mortgages is around 4.5-5%. The oft misquoted 15% interest rates only lasted for a few months and this was at a time when wage inflation was also very high. The boomers have absolutely pulled the ladder up behind them in terms of house prices pensions and many other aspects.

      • A Guitar

        Absolute nonsense, you are making an investment, therefore the higher value of the property helps you. My original house purchase was £20k , I wish it had been £200k as I would now have 10 times as much. In addition salaries have gone up hugely so your not comparing apples with apples.

        On interest rates they were 12%+ for years so don’t pretend repayments havent fallen drastically.

        I repeat the housing market is about affordability (for obvious reasons I have already covered) and this has changed very little. Guess how I know? because if people couldn’t afford houses demad would be dropping and prices would fall. Oh yes there are a few foreigners who have bought but to suggest this is what is propping up prices because no one can buy a house is ludicrous.

  • digitaurus

    It’s hard to fathom the point of this article. As far as I can tell, in the UK the affordability of housing hasn’t actually changed much over time. Housing has got more expensive in the south east (especially in London) and either stayed flat or declined elsewhere (e.g. Northern Ireland).

    In Japan, housing has been a terrible investment for 30 years. In the USA, house prices fell by 70% over a four year period 2008-12. People who invested in housing got lucky in the UK. In general, a more diversified investment strategy is to be preferred!

    I don’t recall that saving up for a deposit in the 1970s was particularly easy and mortgage rates were 10-15% through most of the 1980s and early 1990s. If you do the numbers (see the comment by A Guitar below) it all works through.

    My guess is the author is a professional living in London. If you want to have it “good” like your parents back in the 1970s (!), may I suggest you live like them. Ditch the iPhone, the Sky subscription, the meals out, the partying and the foreign holidays. If you want true authenticity, try going without electricity for a couple of days a week. Ditch the car (get something old and small if you are living in the country). Move somewhere cheap – there are some beautiful spots in the UK where house prices are 3-5x average wages (Google it) or persuade your parents to take you back for a few years. You will find it actually isn’t that hard to save up for a deposit (or for a more diversified savings strategy).

    But you are not going to do that, are you?

  • steve13565

    ===== quote =====
    Last week The Times reported
    that during the past three months alone, baby boomers converted £850
    million of housing wealth into cash using equity release products – the
    highest number since records began.
    ===== /quote =====

    This is what happened in the USA before the real estate crash. Instead of rising incomes, people were able to finance their life styles by borrowing. This false sense of wealth came crashing down in 2008/2009. I am surprised to hear that the bubble is still going on in the UK. I don’t know how long this game can continue in the UK, but I would think it would have to end badly as it did in the USA.

  • Robert DeLorey

    A lot depends upon what you consider “hard work” and what you consider “Idle and Unproductive”. Wealth does tend to accumulate across generations. It usually takes two or three generations of hard work and discipline to accumulate a significant amount of wealth. It is not unusual for it to be lost in a single generation. Sometimes in a single war. Equal opportunity is the best you can hope for. Equal outcomes if achieved today would result in inequality again in a few generations.

    • Reron

      Robert, couldn’t agree more.

  • Reron

    Seems what your describing is asset inflation, the stated goal of worldwide Technocrats. Or its the effect of the present value of money. Don’t see how this is earthshaking info. Don’t think anything can be done from a policy point.

  • sd

    I know plenty of people who are “idle and unproductive” who gain no wealth.

    The article has a point but its overwhelmed by the stupidity of the headline.

  • rogerinflorida

    This is just straight forward asset inflation. When Central Banks around the world keep interest rates artificially low and increase the money supply, allowing banks to reduce lending standards and lend absurd amounts without risk to themselves, this is the result to be expected.
    Remember this has happened (and is still happening) in Canada, Australia, New Zealand, Hong Kong and many other places. There are massive amounts of money seeking a safe haven, particularly from ME oil states and China.
    David Stockman wrote an article describing how $220 Trillion of global debt had resulted in $29 Trillion of increased global GDP, where did the balance go? Into assets; real estate, stock bubbles, fine art, etc, with only a tiny proportion going to wages.

  • roboser

    Since the author refers to Adam Smith, in passing, he might have also mentioned that Adam Smith writes in Chapter IV of Book II that the ordinary market price of land (i.e. houses) depends on the ordinary market rate of interest. Whose fault is it to have a regime of low rates of interest? Not the property owner. Adam Smith also writes that a [person who has capital from which he wishes to derive revenue, should buy land with it. It is never too late to become “wealthy”. Wallowing in the politics of envy will get you nowhere.

  • Rien Vermeer

    and inequaulity rises further and further, too bad politicians in general won’t talk about such mechanismes, thank you for your article. In my country there is even en enforcing element: payed rent on the mortgage for the house you live in is (income) tax deductable, entering the house market is only possible when you have een farly good income, or…rich parents.

  • chris goodwin

    Typical, stale leftist rant: nothing new here, just the same old error in a new setting. John Stuart Mill’s comment (I will not dignify it with the word “thought” – more an off the cuff commonplace, but just as wrong for all that;) that “wealth … doesn’t materialise out of thin air … doesn’t come without costing someone, another human being. …from the fruits of others’ labours, which they don’t receive.” This is just another of the “That man is rich, he must have got his wealth from me!” arguments, which is very understandable, very appealing to the poor, very convenient to the populist politician, very, oh so very “enobling” to the “disinterested” media pundit, and based on nothing at all in the way of a logical argument.

    I thought Evonomics was supposed to be bringing us some NEW insight into political economy, not just the same old, same old. Silly me.

    • Gesonel o Mestre dos Disfarces

      Think about this: how many iPhones or lines of code did Apple`s CEO Tim Cook made last year? So why he gets more money than anyone else at that company?

      • chris goodwin

        Well, possibly because he has the responsibility of taking the major decisions that keep the company going, the strategic decisions that make the Apple Company the success that it is. There has been a lot of, “Oh, it was all down to Steve Jobs – no one can do as well as he did – Tim Cooke is not going to be able to fill his shoes – continue “his” company – be the same kind of “hero” Jobs was – Apple is doomed – it’s all going to come crashing down – sell AAPL now – and so on, blah, blah, blah …) Yet, despite all thse wise words, AAPL continues to make pots of money, lots of AAPL employees continue to do good work, earn good money, and Tim Cook does NOT write lines of code – he employs VERY GOOD SPECIALISTS to do that for the company – and he does not assemble the little beauties – he arranges for willing Chinese operatives to do that, and very good they are at it, and because he arranges the resources of the company thus efficiently, AAPL makles a lot of moolah, and Tim gets his cut. Possibly more than anyone else, but who is complaining ? You ? Why should we care about your complaints ? You write, “So why he gets more money…” but you make no argument: there is no reason behind your use of the word “So” If I am a multimillionaire banker, -that does not mean I handle a lot of cash: that’s is an (important) job for all the cashiers I have in all my branches: they handle the filthy lucre, and keep the books. I never touch the money – but it is still mine, being used on my direction, on my account. Where is your “So” now ? You do not understand the first thing about running a business, like all of Tim Cook’s critics – you are just jealous he has got a job that you think you could do just as well: but do not worry – nobody will give you the job, you just are not qualified. Cook is. That’s why he is the Chef.

        • Gesonel o Mestre dos Disfarces

          Yup. qualified for a rather simply job. Programing the iOS is WAY hard, as is engineering a electronic device. Anyone with a rather common sense can… make decisions. because thats what CEOs do, and nothing more. Marissa Meyer was qualified? Pretty sure she wasn’t, and yet she made a helluva money from her shitty job.

          “Tim’s cut” is a mockery of everyone else’s hard work. Thats why wealth is being more and more concentrated, and a ever growing number of people in your country have to live in tents alongside the road.

  • Peter van den Engel

    Absolutely right. Real estate represents one of the most fraudulous aspects of our economy. It has nothing to do with real labor costs or economic value, in other words it does not represent wealth/ but an off the rail lunatic money system.
    The risen ‘value’ only stands for low interest rates, so that monthly costs fall/ but the risk of debt rises parallel to that, nor does it represent the real economic cost anymore.

    As soon as interest rates rise the market crashes, higher interest rates though are wanted by banks and pension funds.
    All in all it proves how lunatic the financial system we have is. That’s about the only advantage I can think of, of evolutions within it proving to be self destructive or totally inefficient.

    • Reron

      Peter, all it is, is an expression of the current value of money. That is the real and only problem.

      • Peter van den Engel

        Interesting observation Reron, but I am affraid it is incorrect. It is primarily the economic equation itself which is incorrect. Of course the value of money by itself also plays a role in economic equations, but the thing is that although it has evolved naturally in our history and also had positive results, its valuation has never been correct. If you should swap it in its correct equation, which is energy and time, as also represented in our atomclock, you would solve the whole problem in one blow and also learn what economic equations actually mean.

        • Reron

          I think maybe I follow. The problem is the insular aspect of finance unable to properly price and allocate capital in the real world?

          • Peter van den Engel

            Exactly. For instance when a person wants to buy a house, he projects his future life living in it on the object/ which is a total different energy, time value than the one represented by labor, which was fi six months with four people working on it, so two years/ while the buyer pays for thirty years untill it is finally payed off.
            Therefore demand and supply are not in balance, like economic theory suggests.
            It creates a balance; like in quatum fysics everything is relative; but a very inefficient one. The next result is it inflates the cost of his labor, so he can do less.
            If the proper equation would be used, labor would become much, much cheaper and China would no longer have an advantage/ nor western economies a disadvantage. A human and a machine is the same in the whole world/ so why attach different coincidental values to them?
            It would take an alternative financial system attached to consumption, in relation to real labor cost= energy and time and what can be supplied. Which is exactly parallel to popular demand for basic income/ but which is in this case not derived from the fiscal system. The fiscal system is no longer relevant.
            All that matters is available time and talent. It would create a much, much better world, much more efficient and much more fun living in.

            The history of money is interesting, because it came from food supplies whith a token attached to it for the owner, which was then used for trade.
            So originally; ‘by coincidence’; it was an energy time equation/ but later on this was lost in translation. It resulted in ownership of capital and the owner could also buy labor. Actually he did not really buy labor/ but the consumption needs. So as a result people became ‘consumption slaves’, totaly unaware what they were doing in labor. This created the myth people would only work when they were forced to make money, otherwise they would do nothing/ but was the result of buying consumption. Of course capital owners of labor were also able to create efficient labor/ but it is in fact a monarchy system only available for the lucky few. It also creates social unequallity, because that is the natural fysics of the system. Not because they are ‘evil’.

            The change of the financial system would finally put an end to this slavory and set people free. It will create a much more efficient and human economy proud of its culture/ in stead of frustrated.

  • Steve C

    The wealth would not exist except for the demand. If the demand disappeared (as has happened over and over again), the wealth is gone.

  • Petercvs

    The prime cause- Check the timing.
    30 years ago the State or Councils provided low cost accommodation. i.e. They were in competition with private landlords, keeping rents low and rental profits in check. (Increase supply)

    Then they (Thatcher et Al) recited the Mantra “The state is not in the business of being a landlord”
    Assistance to low income families changed to subsidising landlords. (Increase demand)

    Suddenly private rentals became a goldmine. Cheaper housing that used to be bought by first-time homeowners was snapped up at ever increasing prices by landlords charging ever increasing rents.
    What happened when rents rose to become unaffordable? The subsidy was increased. Like trying to put out a fire by dousing it with petrol.
    The solution is obvious, but nobody seems to link this with the unaffordable housing problem.

  • chris goodwin

    There are no capitalists. There is no such thing as Capitalism. And thus there are no people making any “claims” on “behalf of” capitalism: only leftist, Marxists, and similar idiots, claiming to “understand” their own straw man: and make claims for it. Give over.

    Basic claim “… people are rewarded in line with their effort and productivity.” Maybe true-ish. but what has this to do with “capitalism” ? It is just basic economics, sort of, kind of. But don’t go writing any equations: you do not yet understand the field. Sod Samuelson, thought that just because he had access to a computer that entitled him to write a string of fictions, a model. If he lived now he would doubtless be a Climate Scientist.