Piketty's Wealth Driven Inequality: Virtually All in Housing?

The Economist headline reads: "Through the roof: Rising house prices may be chiefly responsible for rising inequality"

This is no surprise to those of us who have been chronicling the loss of destruction of middle income housing affordability where urban containment policy has been implemented from Australia to Canada, Ireland, New Zealand, the United Kingdom and the United States.

Matthew Rognlie, a graduate student at the Massachusetts Institute of Technology, has critiqued the highly publicized work of Thomas Piketty (Capital in the 21st Century) to suggest that rising inequality is largely due to the accumulation of wealth in housing.

House prices have doubled, tripled or more relative to incomes, as regulators have banned or seriously limited new housing on the urban periphery. Younger households have been unable to afford houses as older households have watched their wealth increase.

The "writing" has long been on the wall. Legendary urbanist Sir Peter Hall lamented the potential abandonment of the "ideal of a property owning democracy" (see The Costs of Smart Growth Revisited: A 40 Year Perspective) under urban containment policy.

Rognlie suggests that a better title for Piketty's book would have been Housing in the Twenty-First Century. According to Rognlie: "the literature studying markets with high housing costs finds that these costs are driven in large part by artificial scarcity through land use regulation .... A natural first step to combat the increasing role of housing wealth would be to reexamine these regulations and expand the housing supply."


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It takes time for the truth to get its boots on, doesn't it?

Rognlie is obviously a very wise man, having picked the role of artificial scarcity in land use regulation, as well as finding this major fault in Piketty. That last para quote is superb. Thanks, Wendell, for picking this up.

There are others besides Rognlie who need to be noted re faulting Piketty's thesis:

Capital is not back: A comment on Thomas Piketty’s ‘Capital in the 21st Century’
Odran Bonnet, Pierre-Henri Bono, Guillaume Camille Chapelle, Étienne Wasmer 30 June 2014


"Thomas Piketty’s claim that the ratio of capital to national income is approaching 19th-century levels has fuelled the debate over inequality. This column argues that Piketty’s claim rests on the recent increase in the price of housing. Other forms of capital are, relative to income, at much lower levels than they were a century ago."

Matt Ridley instinctively also got this right in a June 2014 column in The Times of London:

“…..Well, knock me down with a feather. You mean to say that during three decades when the government encouraged asset bubbles in house prices; gave tax breaks to pensions; lightly taxed wealthy non-doms; and severely restricted the supply of land for housing, pushing up the premium earned by planning permission for development, the wealthy owners of capital saw their relative wealth increase slightly? Well, I’ll be…….

“……..Neither Britain nor the world is especially unequal right now compared with most of the past two centuries. If you want to reduce wealth inequality in Britain, then the quickest way is to liberalise the planning laws to bring down house prices……”

More recently, Joseph Stiglitz has got on board:

Thomas Piketty gets income inequality wrong

Joseph Stiglitz Jan 2, 2015