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Owning your own home doesn't make you rich. Owning somebody else's does

Washington, DC

IN the United States more than almost anywhere else, wealth and income are concentrated among business owners and landlords. And that club, blessed by capitalism, is becoming increasingly difficult to join.

Business owners and landlords tend to be about four times as wealthy as the average American. That's more than almost any other country included in a new study. On the other end of the spectrum, renters in the US tend to have about an eighth as much wealth as the average American.

In the recent working paper, Austrian central bank economists Pirmin Fessler and Martin Schürz used a long-running US wealth survey and its newer European counterpart to compare wealth across continents. It's one of the first such comparisons to look at wealth in terms of what people use it for, rather than at arbitrary percentile cut-off points. The widest inequalities, they find, are between groups inside countries, not across country borders.

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In their analysis, they split households into three groups. Homeowners, whose primary wealth is also their primary residence, form the bulk of the middle and upper-middle class. Business owners and landlords (about 15 per cent of US households), tend to be among the wealthiest. Their wealth is typically used to generate additional income. Those who pay to rent their residences (about 35 per cent of households), and whose wealth is typically used to cover needs such as emergency expenses or retirement, fill out the bottom of the spectrum. They're joined by homeowners and business owners whose debt exceeds their equity.

The bottom 40 per cent are most likely to be renters. The top 5 per cent are most likely to own businesses or rental properties. The authors found this polarisation has increased since 1962.

In every country Mr Fessler and Mr Schürz studied, homeowners' wealth hovers near the national average. The biggest gaps are between those who own businesses and rental properties and their customers and tenants.

In terms of wealth, that gap is widest in the US and Austria. In terms of income alone, the US tops the list.

This divergence between worker and owner is perhaps the oldest take on wealth inequality. Yet economists who measure these things on a global scale have sidelined it in favour of comparisons between the "one per centers" and the other 99 per cent. They had to. Many data sets don't include an individual's housing- or business-ownership status, for reasons of availability or privacy. Without those identifiers, researchers can only measure wealth distribution in terms of the wealth itself.

James Davies, an economist at Canada's Western University whose work on international wealth measurement spans four decades, observed that large-scale stock ownership performs a similar function as owning rental properties or businesses. If Mr Fessler and Mr Schürz had taken equities into account, the differences between the US and other countries would probably have been larger.

Mr Davies said the share of business owners and landlords across countries is similar enough to make him think the measure leaves unexplained a significant proportion of international variations in inequality.

Understanding how ownership of real estate and financial assets differs across levels of wealth helps economists evaluate other consequences of wealth inequality, such as disparities in safety, social power and consumption, said Maximilian Kasy, a Harvard University economist who has collaborated with Mr Fessler in the past.

The analysis "helps with understanding the causes and consequences of differences in the distribution of total household wealth across time and across countries", Mr Kasy said. Those differences arise when people use their savings to make up for missing or inefficient public pension systems, higher-education opportunities, housing and health care.

Mr Fessler says social relationships reveal how wealth levels and wealth uses interact. A renter might use her wealth to fund retirement, while a business owner might use her wealth for technology, machinery or even influence by making political donations or running for office.

"It is not the same to save for an emergency, or to accumulate wealth in order to exercise power in society," said Mr Schürz, Mr Fessler's co-author. "When researchers only measure the distribution of net wealth between households, they risk overlooking these distinctions."

University of Michigan economist Gabriel Ehrlich said that the underlying inequality squares with his understanding of the gulf between renters and owners in the US, but he questioned the broader applications of the "sociological" frame used by Mr Fessler and Mr Schürz. WP