Housing prices and wealth inequality in Western Europe

Abstract

Comparative political economy (CPE) has robustly examined the political and institutional determinants of income inequality. However, the study of wealth, which is more unequally distributed than income, has been largely understudied within CPE. Using new data from the World Income Database (WID), this article examines how economic, political and institutional dynamics shape wealth-to-income ratios within Western European and OECD countries. It is found that the political and institutional determinants that affect income inequality have no short- or long-run effects on the wealth-to-income ratio. Rather, the rise in wealth-to-income ratios is driven by rising housing prices, as well as price changes in other financial assets, not home ownership or national saving rates. The article concludes by examining how the changing dynamics of housing prices and wealth inequality will increasingly shape intergenerational – and associated class-based – political conflict in Western Europe.