Housing and the secular rise in wealth inequality
Housing and the secular rise in wealth inequality
The ratio of wealth over income is back to the levels at the end of the 19th century. It is however actually due to the rise in housing, itself due to better access to property after WWII and rising housing prices over the last 25 years. Worries about diverging wealth inequality have therefore been quite exaggerated.
thank you for being here and who you have for sure heard of even though you might not have read its book or you may not have followed the ensuing debate economists at international level so following debate on austerity this is the most amazing debate because an economic debate becomes a global debate not only amongst experts her to say but also as a mainstream topic so before explaining to you what we're going to talk about today let me summarize what has happened before today we have to start back in 2013 a very important year for two reasons number one because the books by Thomas Piketty was published in France and triggered off the debate not the global debate we're seeing today that was only a French debate the community of economists tends to read in the English publication so at the beginning they didn't realize about this important book but 2013 is also the year of another interesting culture and economic debate which is the one revolving around the Reiner raghav case many of you probably remember this the debate on austerity is predominantly based on Carmen dryness and studies who have claims with their apparently solid evidence that when public debt is more than 90 percent of the GDP trickers of another launched effect a snowballing effect so that interest rates on public debt eats up resources bringing the country out of control this study which has become a very successful book named this time it's different it's the dogma of austerity and is often mentioned as evidence by policymaker such as Holly ran at that time the European Commissioner well apparently this is nothing to do what were debating here today but actually it has something relevant to it because at one point a student writing his PhD about realized that they have made mistakes in the use of Excel some silly mistakes have been made when writing function of Excel with the lost of many loss of many data so that Ryan enrolls conclusions were actually much weaker than people had originally believed this was a scandal because all those who complained about austerity effects finally could prove that it was all wrong and raised on a mistake and Excel Missy in 2015 thomas piketty's book was published in english triggering off the international debate the Financial Times at the end of May 2014 first wrote Christian economics editor right to make the same run a rogue of operation contesting Piketty and the way how figgity had used some data about wealth especially in the UK the book my ticket is a very empirical book it is not a book of economic theory only but it is based on a huge mass of data and economists even those who do not agree with this conclude recognized to him the merit of having done and amazing analysis of data on wealth which are very difficult to find because as you can very well understand it is difficult to estimate the value of a house in the 18th century to compare that value with today's value so that was the first time that Piketty was at the center of the international debate and people try to understand whether his conclusions were grounded or not because his book supports a very strong idea that is that capital yield grows more than economy itself in other words there is cumulative effect that is not incidental that there's not a distortion of the last few years but is intrinsic in the dynamics of capitalism that his wealth is accumulated very very quickly the rich become richer we're not talking about income were talking about wealth assets and everything so our that stands for yield when it is greater than G which is a growth of real economy the illusion we have had in the years after the war all the way up to the 70s was an illusion that is we thought that equality was increasing with the poorest becoming richer improving their standard of life but this was due to the fact that the world war had actually leveled the playing field and this snowball effect that started from a lower level but capitalism unavoidable it leads to explode the explosion of diss equality so Piketty claims it is nice to think about taxation but this is not what we're going to focus on right now because today we're going to focus on the economic issues mr. Piketty evokes Marx's capital but does not agree with the decreasing yield of capital which according to PJ is actually growing and not decreasing so the mechanism was applied to the pickety book but this was a failure because the economists and others recognized that tickety's research is solid and rounded however one of the fundamental aspects has been questioned by Etienne was been sitting here next to me economies so director of labor economics that is a research centre but he will explain better to us what he actually does but the important point is that together with other economists in a study he has criticized radically pick at his book because he claims that Piketty made a mistake in calculating a fundamental aspect of wealth accumulation that refers to housing and the value role houses we all know really well that a lot of wealth is immobilized and frozen in buildings in houses so if you make a mistake in estimating that's part of wealth everything goes wrong mr. eddie investment confrontation as parallel to the financial time times but it happens within the french debates it actually came before the Financial Times comments and it has taken some times ready to become mainstream press you make well a few months ago in March home whether as criticize picketed look with the different perspective but following the same line and focusing on real estate wealth and this accumulation of wealth this was done in America it has fake International Eco however a dentist's math analysis is much more disruptive so to say because it refers not only to the use of data but also to a conceptual debatable approach that Piketty is used and it would be interesting to see what is left of picketers lesson if we take this detail away from it but let's see if mr. Chandra is able to persuade us and then we shall have our Q&A discussion with the public to understand what is left of Piggy's study mr. MacMurray you have a floor speak Italian so I'm going to speak as a French or English I guess English is the easiest and indeed thanks for this very nice introduction I followed some of the details I teach in sauce PO which is one of those French honzik also I teach the first year undergrad microeconomics to the future ministers and civil servants if at some point from Stowe's well will be praised for that but from fails to develop in the next 20 years it will be my fault and I'm a labor economist and urban economist was thought a little bit about housing prices mobility and access to jobs and I was actually quite fascinated by this story of rising wealth inequality that is put forward by Tama Piketty and what I'm going to talk about today is this interplay between housing and the secular rise in inequality and mostly about wealth inequality what people own and the way they save their income and all these accumulates in their hands and this is where housing which is one of the most important assets of people will play a key role so it's always there impressive to see the participation to these debates about inequality of course when Tamar goes somewhere the rooms are full but even when is not here the rooms are full and he's indeed a great concern about this idea of rising inequality I think most of us are interested in this issue because we ask ourselves whether this rise of inequality which which is something that nobody can deny if this rise in inequality is something which is out of control is it something that policymakers need to really take care of is it something that we can stop is it something that is going to make the society disappear or dissolve into civil conflicts or is it something that is more or less under control but for which some specific actions are needed and the most fascinating view of inequality is the one concerning wealth inequality so again wealth being what people have accumulated or houses or cars or paintings for those who have paintings and I think the book of Tamar is very nice about showing a couple of facts about that wealth inequality so just and I'm sure will be a little bit too technical by defining the concept but the key of understanding is there it defines a measure of wealth which is the son of a couple of components of wealth one is capital of companies like machines office space all things that can produce something and produce returns plus land so agricultural land mostly which is one of the sources of wealth and the last component is housing and he looked as the evolution of this wealth over time over the centuries and parrot - what people can actually produce with this wealth with this capital that's something that we call GDP or national income and it shows that there has been a very fast increase in this ratio of capital of income over the last decades and at up to a point where we would reach a level of this ratio kavaja why that will be held high in the 21st century as it was in the beginning of the 20th century so the broad view of inequality is the following the world has different periods of alternating we have sometimes periods of increase inequality sometimes periods of compression of inequality and we would be in a face of rising inequality whereas put by the author himself divergence foxes and the world divergence is very important here might dominate as it seems to be the case in the beginning of our century again we we may return to the level of inequality of the twenty the nineteenth century or the beginning of the 20th century and what is behind is a story of mechanism which is out of control like a nuclear reactions that nobody controls the idea would be that Wells as accumulated a little bit too fast and people who own that wells of becoming richer and richer they just sit on a pile of money and that money produces returns that's what is called here on this on this screen so is the return on capital each year in the bank I can get two three four five percents and if that returns is above the growth of the growth rate of production then there is this tendency towards indefinite accumulation of wealth in the ends of the few or the richest okay that's like a snowball effect you know when you have a ball of snow and then it's fall down the mountains then becomes bigger and bigger and the heat just in the end the owner of the wall Academy so of course that's a scary story of the world and it's in a way capturing some of the facts and the facts are presented here so this graph is probably the most famous of the book of Tom applicati so you have the ratio of capital of income national income over no less than four centuries from 1700 to 2010 of course the scale is not constant over time so because we don't have the data for everything but this is the main chart and as you can see this ratio key over Y so what people are saved and accumulated divided that by what they can produce in the year this ratio has gone from 700 person so a large number to very small number historically speaking 300 in the 1920s so the First World War and the Great Depression in the twenties destroyed wealth and destroyed the stock of capital and then we would be in a phase of rising inequality and as you see in the course of the second half of the 20th century we have this reaction relation of wealth and capital now these are the three components of this wealth the the black one is land agricultural land and that part has vanished over time because we don't do not produce only with agricultural land there has been the Industrial Revolution behind and so we produce thanks to other forms of capital the second form of capital is this top area here so that part here which is other forms of capital basically this is equipment machinery tools machine tools so basically companies firms producing goods and then this last component of wealth is this slight gray area which is housing so these are the three components of wealth that people own you me our families on the economy some of its own or less rich but overall this is the sum of these three commands this is for France but the picture is similar in Canada the UK and some countries not all countries but pretty pretty much which is what inspired to marketing now of course if you look at the recent trend over the last four decades since the seventies most of the increase year would come from the increase in housing and behind this increase in housing you have the increase in the price of housing in some countries and especially France housing prices have gone up very fast multiplied by two or three and so given square meters in Paris has become extremely expensive as compared to 40 years ago okay now if you look at this curve what you see is indeed a UK it went up from very high level to low level and then it increased again if you exclude housing and I'm going to tell you why we should are not exclude housing and you don't have you curve but you have instead le curve and le curve it says what it says which is that it was high it has dropped and now it's stable at some low level okay so we should think about whether we should include housing in the measure of wins and if we include housing do we interpret this housing as something generated returns and producing more inequality as time goes and on that second question I will try to answer that the answer is no housing is a very specific asset so should we include housing or not in the measurement of wealth of course if you own your house you're it sure that if you don't so indeed and housing is a part of wealth of people but it's a specific asset in the sense that it's when I said that people tend to live in ok if you have your house if you have an apartment and you live in inside it it's not that it's something that is going to produce some real return you are living in place you're not receiving a shake it rebounds instead you are saving the money that you have to and if you live in your hand hole in an apartment that you rent so housing is not going to produce the returns that going to increase the accumulation of wealth is going to help people to save some rental price the rents that they would pay otherwise so that's very important because the key issue here is going to be the interpretation we are going to make about this source of wealth and as you may know if you have studied the story of economics the measurement of capital has always been a very strong controversy and it has been the issue of controversy between what is called to converges you had the current bridge in Massachusetts the neoclassical economist that used to measure capital like Tom applicative in terms of the price of capital the current price and you had the paradox people in Cambridge UK that would instead consider that capital is actually the sum of hours spent to produce it and so it's not to be evaluated at the price but more as the effort made in the past accumulated so these are different views of capital and the interpretation that we are going to make about this new curve is going to depend on the type of measurement we are going to to impose on this issue of capital so indeed and that's the key of the argument there are two ways of measuring housing capital one as I said is what Tamar used which comes from national accounts where you evaluate the unit of housing at the price that is where it at which it is sold at any time so that's called the current price the current market price but that is a value which is the value that you could get out of your wells if you decided to sell it there is another view of capital which is evaluated at the price of the dividends of this capital which is the rental price of housing so if you decided to rent your you need a housing you get a market price but that would be a rent and that friend would indeed contribute to your rising wealth in the sense that is what is going to produce more money and and wealth accumulation and the last thing about economic theory is that in principle it is very two different measures and the spirit is completely different one is measuring capital at a price of transactions the second one is measuring capital at the price of the rental market they should give exactly the same outcome the same result we should get the same number exactly because behind there is an equilibrium in the housing market people should be indifferent between buying or renting and this equilibrium should produce the same value for the rental price of capital or the actual price of capital but this is not what we observe that's one of the trends that we have observed in the last few decades in front for instance housing price have gone up a lot and rents are remained fairly stable that might be contrarian to achieve because we have this idea that in big cities rents on increasing and increasing but actually if anything prices have increased much faster and rinsed of being relatively under control I will show you some data on that and so since the two series price and rents do not evaluate do not evolve at the same pace then the choice of measurement matters and then the interpretation one can make out of it will be very different because the choice of the measurement for housing capital will have an implication on whether this curve is au curve or L curve and so the view about inequality will be changed and more importantly even this has very concrete implications on the type of taxation you want to impose on wealth and on capital and again this is of course the key implication of any analysis of inequality you don't study inequality for because you like it you'll study inequality because you want to know how to tax efficiently an economy to reduce inequality so let me show you this graph which is for fronts which would find the same in the Netherlands you would find the same in Spain the same in the UK the blue curve is a curve since the mid-80s in France of the rental price of housing that is the rents that people pay relative to the disposable income of households and if you look at this curve it's not that it does not increase it increase a little bit but it does not increase dramatically it's more or less flat curve the red one instead is very different the red one is housing price per square meter controlling for quality quality of housing has increased over time so we try to control for quality if you look at this curve since the mid 90s late 90s what you see is a doubling of housing prices relative to income okay so price and rents are not the same things and so the measurement if you will will become important here so that suggests two viewpoints which are going to be different in terms of methodology of measurement of inequality but also in terms of an interpretation if you evaluate this ratio qry remember its accumulated wealth divided by what people can produce out of it you have a great measure of wealth and if you just accept that it's only wealth the value of capital in firms the value of capital for households how much you can value the cars on which you can value the apartments then wealth has increased velocity to income and there is no question about that and Thomas right there has been this chucker and wealth has gone up now if you want to interpret this qy as something producing inequality alone that is producing returns on wealth then you have to evaluate it using the dividends of capital that is using the fact that housing units produce a return which are only the rents that people get out of it and if you do that you might potentially interpret this caroline corrected for rents as a source of potential explosive dynamics but it happens that cure hawaii measure this way is not increasing it's actually flat and not only it's flat but it's at it at some historical minimum let me be more precise about that this is something that we did one year ago of more or less we were probably the first to think deeply about capital and housing in tom appliquéd his book we did the flowing exercise very simple one we use the series of tom applicative for many countries and we divided housing by its price so we sort of normalized for the price increase that we observe and we multiply it by the rents that people would receive if they decided to rent housing capital and that give us a measure of wealth that is connected to the actual dividend the actual hotel that people can make out of this capital so it's the perfect measure to know whether that is growing inequality by yourself in forcing mechanism models so this is a paper by otto hahn banach aji bono and young Chappell and myself two of them of students in my own institution the third one is the researcher in one of our centers and when you do so it turns out that capital of our national income is actually flat and flats since 1950 in most countries okay there is only one country for which and this is still increased which is Germany but German is a specific country and actually in thomas piketty's book before corrections this is the only country for which capital income a decline in history so watch what we show is that for germany destroys a little bit different for demographic reasons mostly so this is sorry i think that since this very important point if you could explain again how this is because it's a very turning point here this is exactly the out of the argument so there are a couple of lines here and if you want to look at curve which is this solid line here so this black solid line which goes basically from 300 persons to 600 person's this curve is thomas piketty's capital of our income ratio so this is the thing that since the 50s has been multiplied by to do to mostly housing okay so this is the original graph of Piketty but to scale which is only the last 50 60 years so and you see this doubling of capital of income ratio which is the source of concern and we we facing this explosive inequality process so what we did is interpret Kyra Y as capital producing dividend as is doing our transformation we actually try to compute the dividends from this capital stock this housing stock and this is the curve which is the dashed line here so this is the sum of all forms of capital in France and if you look at the initial part of this curve it's 500 persons if you look at the final this is 500 percent okay so what this says is that of collection shows that capital of your income expressed in terms of the dividend capital can actually produce as remains stable over time over the last sixty years okay precisely because as the price of housing goes up the hotel on housing goes down if you buy an apartment which is much more expensive and at the rent that you can get out of it remain stable just means that the return on capital is going down so over that period in France you saw two phenomenon at the same time the rising prices of housing flats rents and decline in the return on that specific form of capital which is housing okay so it's not an explosion of returns on capital it's exactly the opposite it's a decline in the return on housing and decline of capital so let me reach three intermediate conclusion and then we go on the discussion in the implication of these conclusions so first again there should be no concern about capital of our income ratio measured in the way of the book of the mobility if we just interpret it as well because wealth is the sum of all components suppose that some of you are rich enough to get paintings at home you have a private collection of Monet Picasso da Vinci paintings this is part of all wealth of course but if it's a private collection doesn't produce any return just that we have it you know apartments that Wells may be fragile it may fluctuate over time it might go up down depending on the price it can even vanish but it has to be counted as part of the wealth in that sense that measure is correct what is not correct I think and I don't mean that Tamar pushed that line too much but many readers of Tom applicator got that from the book they thought there is a sort of accumulation of capital and this cave over why that is increasing is a source of exploding inequality because that wealth is concentrated in the ends of the richest so there should be some kind of fatal process leading inexorably to diverging wealth and that's the part that I think is can be challenged very easily because again that wealth is not producing returns think about it suppose that you're super rich and that you have a very nice boat and that you again can go in the Adriatic every summer or every week it's not what you're seeing in your turns if anything you have to pay a lot for the repairs you have to pay for the captain it's a ton so if anything is good to make you poor not richer so of course it's nice for the big yacht and and sale or whatever but is not a process of accumulation of wealth actually it's a process of dissipation of wealth and the same for housing if you are in the castle in the Dolomites the price of it might have gone up a lot fine with you you can sell it at any time but if you want to keep it is going to whip you dissipate your your money because you need to repair and and then make the value of it constant and that can be pretty expensive so the third contrary conclusion here as a matter of fact if you look carefully at all the components of inequality which is what you see if I sum this is what is called the inequality of wealth in France it's the top ten percent of wealth relative to total wealth or the top one percent of wet solid fuels that comes from to map his book as well what you see is that despite discover why going up a lot if anything the inequality of wealth has gone down since the 1910 1930s has gone down so despite the huge rise in housing inequality of wealth has not gone down it has gone it's not gonna be that's gone down so it's time to ask is it - I can Emiko attack academic debate between two economists or between between 20 economists something we should not care about I think the answer is no it's much deeper than that because all the implication of the analysis concerning equality and concern taxation and so if you believe that Kyra why is exploding because of this self-perpetuating mechanism of wealth acclamation then comes naturally the idea of taxing wealth and that's welcomed the idea of this world taxation of wealth that comes in the end of the book of Tom a beginning now if it's only a question of wealth but not a question of accumulation of wealth then it's a little bit possible because it's not that you want to tax wells per se you can just tax returns you can just tax people when they die and that they don't transmit this waste to their their kids to their to their to their kids and daughters and sons you want to tax only at the time where people are in everything so that's the question I'm going to ask though I'm going to say what are the implication of this analysis in terms of house of of Taxation in particular what's the best way to tax housing I mean in country like France taxation of housing is obviously a very sensitive issue because people have become a hit sure actually because they have octonauts are much more expensive they can be solved so should we taxed that even though they don't get any return on that or should we postpone a little bit until they die or until they sell to make a capital gain and that's a very important question and not an easy one to answer so what's the whole of on taxation on the housing market our cupola feel that we can tax first should we tax the owner-occupiers so some offers or opening an apartment or house the answer is yes most countries have a property tax and this property tax is always a proportion of the value of that house which is fine but what happens if the price of housing is multiplied by three which is what happened in France since the mid 90s should we multiply the taxes by three themselves and the answer is no I think if we are logical we should think of taxing the value of properties and make it evolve a little bit more slowly following the evolution of friends and again that's a little bit subtle but the idea is that by being in horner of my house I save rent as compared to the poor young guy that have to rent the apartment there they are dwelling and the inequality between the owner and the renter is just the value of the rent so if anything the taxation could should correct for this inequality but following slowly the evolution of friends not this hugely fluctuating price of of capital certain things should we tax also forms of housing capital do we tax secondary houses that's perfectly fine sugan all right houses are not a primary good by definition so you can sell your secondary house if you do not want to pay the taxation but you don't need to live elsewhere because you're its by definition a secondary house should we tax residential investments that's something that depends on the situation of the country in the country like France we have a shortage of housing in big cities so if anything we want to push towards residential investment so it's not necessarily a good idea to tax the owner of residential investments in other countries where you have an excess supply of housing then it's perfectly fine to tax more investment but you see that the taxation of this capital stock of housing really depends on its nature whether it's residential investment with right scenario Alice's or whether it's home occupiers that'll be to me tax and that's not so easy to understand if you just look at this rough measure of inequality which is Caroline and the last that maybe the most important thing is should we tax housing capital gains and again you will see that this is exactly the same question as the one that we had in 9 in the beginning which is what's the interpretation of kilvo why why suppose that you live in your apartment and that apartment that you bought 100 thousand euro in the 80s or 90s is no four times more expensive so you sell it and you make a capital gain going from one hundred thousand to four hundred thousand so you make a huge capital gain should we tax capital gain well again it depends because if you live in this place and that's your owner occupier of that place sure you make a capital gain but this capital gain is actually in a way because it sure is the place where you live so if you sell it you have to lay live as well and if you live as where you have to buy that place presumably and you have to buy it at the price that has increased as well so you have you have made no capital gain in practice you have made one but you have to buy immediately after sure and the mystery is why people don't do it okay so they touch some value at this housing capital but indeed if they sell it it's total capital gain unless they rent okay so I think we come back to that on the description because that's a very important point and you're right to point it out now if you occupy L you need to find another one if you want to expand your space then you actually lose you make a capital loss okay so it's a double penalty in a sense if you tax housing at the market price and in most countries at least in mine since the early 80s capital gains in the housing market are not taxed if your resident of your house okay and I think that's the exact same reason why one should not consider ki over Y evaluated at market price as a measure of capital it's because it does not produce dividend beyond the rent that you save so it's exactly the same question the reason why we don't tax capital gains for people living in the house is the reason when K over Y is not capital producing dividend so many words that's the key message so I've just a couple of points to conclude and they're only well six which is longer they are very shot first point capital in the sense of producing dividends as no trend in the last four decades in most countries second point obviously the debate on wealth inequality is welcome we should think a little bit more about all those things and this is the key message of to my periods book inequality as increased we know that nobody denies it the question is whether it's a process out of control or not and I tend to believe that this third point the alarm is conclusion of exploding inequality is not there and that's simply actually wrong because of the description that was done before right there of you should put all intellectual effort on something else which is not the accumulation of wealth by Hansie which is not something we see in the data but why inequality of income as increase and there are two sources one is globalization second one is tactical progress there has been these big waves of innovation that are favored high income inequality so if you go into Silicon Valley it's impossible to buy anything because people have become rich and richer you have the Google millionaires you have these high tech companies you have lawyers so people have produced innovations that have a market price and so that makes income inequality increase lots it's not that people want you it's not like you know we have madam baton co in France that just inherited or married well and she's rich and she's richer and richer it's not what we see this is one example but you have Bill Gates all these people let me be provocative I think wall taxation of capital has no future is just a utopia what we need is to think about a fiscal system that corrects for high income inequality when that income inequality comes from innovations we want to tax inequality but we don't want to prevent people from investing and innovating and that's a difficult issue and the last point why is it that housing prices have increased so much so let me be Italian Pro France is because it's a beautiful country where everyone wants to live take a new condom work in any village in France in Italy compared to a home work in any small town in the US or in the UK it's very different we want to live in France in Italy and pay big prices for these places because the color of living the quality of food whatever Social Security makes this country very nice so I'm very optimistic in the end I don't see an explosion of inequality I see an increase in inequality but nothing out of control and the reason why this valuation of capital is so high in our country is something that has to see with the quality of life and so I'm complaining on that world and right thank you for your attention I just want to point out that if you're interested by those debates I've put some of these elements on my own page there is a special page for her thomas piketty's debate and this is what you can find it so thank you I am personal do so thank you very much - that's weird to make absolutely sure that we've understood each other tickety's book was so successful in the debate about inequality because it was focusing on wealth and not on income among people how much people earn when they belong to the top richest ones and we just heard from mr. McCain Whismur that this can lead to a distortion because you would view a crucial element such as houses in the wrong way the right way to understand about their value is how much they yell I have a question for each in but first of all we can collect your questions so you can ask them in Italian and in English Italian or recenter that would sooner so just feel free to ask your questions in English or in Italian we shall collect three questions and then we shall go on with the answers my question is maybe there is a way to decide if we we should look at housing at market price or at the price of dividends and maybe we would want to know how much of the capital of the top 1% is in housing and how much is in stocks shares whatever because for example Italy is a country where 70% of families owned their apartments and so this is the spreading of wealth but this capital of the average Italian family house is probably 95% of the capital which would be not the case of the top 1% so I would like you to elaborate on this the rest is just one one small question I would take issue with your example comparing a yacht in the Attic see with housing because housing and not obviously is a very liquid form of capital you have your castle in the ALP and sooner or later a Dubai Sheikh would like to spend 20 million to have it yachts depreciate more quickly I would like to go back to the question about the castle which has just been asked them in if I have in a castle and I live it as it is for 20 years without receiving any rent for it in 20 years I'm going to be even richer than what I am now simply in virtue this effect I don't think that wealth should be evaluate merely as a flow of dividends and then of course the evaluation is changeable not only for houses this virtual not only for houses but also for shares because those shares for sure oscillate and everything depends on whether you manage to sell them at which price I managed to sell them every type of wealth is virtual because until you realize it that is you sell it it does not become realistic wealth I didn't understand what you meant but a castle well I meant to say that I could have a castle and I don't perceive any rent but in 20 years I still have my castle and sooner or later I will find that super-rich Sheikh willing to pay 20 million euro for my decrepit castle so we can't say that this is not wealth merely because there is no flow of dividends I have the impression that this is not the right way it doesn't say that it is not wealth it says it's not an accumulation of wealth because it doesn't produce dividends but anyway last question and then a terrible answer them it is estimated that some 100 families were thrown out of their houses in 2014 a month per month so 100 families per month thrown out of their houses doesn't this sound in Spain yes yeah doesn't this sound that's increasing and worrying inequality mostly thinking that those apartments then go to banks which try to sell them for much more now zero thank you very much I'm going to try to answer the question if I forget them so because they are very interesting ones and deep points so I think the issue of where the housing is a good measure of inequality or not is indeed an interesting one because if anything and again the videos that you gave for Italy or mall is the same in France it's a little bit less having 60% of household in France on the house and that what this number was much smaller in the 50s so what happened in the last 40 years is a sort of democratization of access to wealth thanks to housing because the have developed people could borrow to buy the house and so the fact that not only people own more houses but the price of houses have gone up is a source of compression of inequality and that's exactly the opposite as what we would believe if we looked at K over Y and believed that it's a source of diverging an equation actually housing has been a powerful factor of compression of inequality and again this because the credit market has worked relatively well over that period then the question is whether the very rich people the top 1% of 5% of wealth inequality of their majority of the nura set in to housing and the answer is no so given that the relative price of housing has gone up relative to the price of other asset again this trend that was higher capital income ratio which is the trend from the increase in the price of capital is another source of compression of relative inequality and this is why when I showed you this graph this graph here which is basically the ratio of the wealth in the ends of the top 1% which is the squares of the top 10% which are the triangles this share has declined exactly at the time where the price of housing has gone up so again the view that we get out of this is that if anything housing has contributed to reducing wealth inequality that's first order thing then comes the questions what happens in the bottom of the distribution so some people were expelled that's the same inference by the way in Spain it's a bit specific because people have borrowed for 40 years they have signed this crazy credit contract where not only they have to pay for 40 years but their their kids we are also to pay for the mortgage which is somehow insane and that's where capitalism has become mad because when should have prevented that from happening but it's not connected to the debates that each sure people become richer if anything is banks that benefit did from low interest rate so they had a lot of liquidity they try to sell those liquidity but you know when nobody was forced to ransom happens that culturally speaking Spanish people wanted to hone and at any price until they realize that it was an economic mistake doing doing so but again I totally agree first that there is rising equality so gone that this rise in equality is more in the bottom than in the top and again the issue about the top this consult about top 1% let me be frank it's pure marketing it's pure marketing and it's pretty efficient of course one of my colleagues said once if you think about the top 1% or well top one point zero one percent it's a good way to tell to people like yours which are already in the top of the distribution you should be jealous because there are people above you become richer that's the way we attract attention but this is not exactly the the main picture that I get out of the data picture I get out of the data is that rich people in the last 20 years or in the itec in the biotech there are lawyers there are people working they accumulate wealth but they also spend it they invest in these big balls I'm going to come back to the question on the on the castle and the boats and they dissipate their money somehow it's not like it's going to explode there is this inequality process we accept it I think it's a bad thing overall but it comes from economic fundamentals that are not the one that of a story of rent accumulation of capital accumulation I'm not sure I can answer all the questions about whether we should indeed value yoga why at the price or the rent I think that if you want to interpret Qi as producing dividend the natural ways to use the measure on dividends it's a bit tautological but I say that if you think of dividends then talk about dividend if you want to talk about well then let's measure at the price that at which you can sell it and but these are different objects and the conclusion you can make out of it or different too so that's I don't say much more than that did I answer the question on the boats and the castles are all not completely so okay can you ask again because sorry we are talking about very different kind of assets housing is very liquid in if we are not living in a suburb in Detroit in Paris Rome Venice Trento Toulouse housing is very liquid so that means that if I have a medium a very small apartment I do have half a million euros there and if I have a castle I do have ten million here so while yacht you can be an amateur and you can sell it the second hand but it devastates this is not the case for housing yes I'm not an expert on on the big castles and private jets but my understanding is that this is a market which is pretty liquid actually so if you have your private jet you can sell it at a lower price but while housing I agree in big cities it's relatively fast to sell but it's not the case of Muslim housing it takes months to sell especially in the depressing markets so I would tend to think that evaluating that form of capital as the wealth that is immediately available is not as simple as that because precisely it can take some time especially in the market which because poly that makes me think that we had this policy I guess it's in only for France but we induce two families to buy and France vast country in which you have places which are not very economically active and we subsidize their credit we say you should buy and then they buy and then the hydrants economically depressed and not only they are not very rich but also they have a kind of assets which is not that liquid and they are stuck in the place where there is no job so I'm sure there are some similarities in Italy in some regions as well so again housing is not the best liquid and the most best investment for this reason it's a good store value for liquid places like in the center of the city but maybe not for medium income low income families okay so on Costello break a capital D para una persona que pasa don't Costello back to the castle example I know a person who owns a castle and what you told us before does not work out because you don't manage to sell a castle more than once in your life that is nobody knows whether a castle is worth ten five fifteen fifty million euros what we know for sure is that to maintain it you have to pay taxes you have to pay a janitor to look after it so it is not technically provable that's the value of the castle increases in time of ghosts and in time because none of us has ever bought a castle and none of us can evaluate its real value so that's not an effective example in my opinion we will allow for three more questions and then I shall complete my my questions question is the revenue from the rentals somehow considered in the ipsilon factor because if so probably should be not consider at all so the funny thing is that it is considered in the measurement of the denominator on this why the income so of course the Madonn of capital or included as GDP GDP even the fictive the virtual returns on housing so we have a stock of capital all the apartment that people own and live in and the national accounts estimate the value of the rent and they added up in the denominator which is this while okay while K by definition is a would you say Italian patrimonio patrimony patrimonio there is no return it just the price the value and you evaluate the value at the market price so that actually goes even knowing my direction the center those dividends they concede only there and not here so okay so maniac if when you evaluating present value then did you take in account in any way the term value of housing it's like a similar question but I think you should take in account the term value of the term value when you're evaluating with humans accounting some discount factor yeah yeah yeah in anyway did you take in account it yes so first we wanted to do a very simple exercise which is to keep the discount factor constant suppose that it's some psychological value i discount the future versus the present that concentrate not to calculate this simple correction but then of course and we send our paper to a journal and referees ask the exactly same question maybe we're a very anonymous referee and they ask but what's the story behind and so what we did is to look at the evolution of the discount factors and one proxy for the discount factor is the rate of interest at which rate people can borrow and then we understood something which is quite interesting over time in France as in most European countries thanks to the European Central Bank the rate at which people can borrow went down okay so and is probably a good explanation for a good explanation for the rise of housing prices what happened is that in Europe people had more liquidity they could borrow at a lower rate so the demand for housing went up and prices of housing went up now this is what explains this killer why going up the decline in the rate of discounts think of the interpretation of this ratio in terms of accumulation of wealth it's according to Tama the fact that the returns on capital goes up for is higher than the rate of growth so you have two conflicting view and again you can choose one against the other because they have different implication on the one and if you believe that friends accumulates and people get richer you believe that the rate of discount goes up but here what is behind this is a rise in the price of housing that is probably due to deluxe policy of European Central Bank over the last 20 years and so this is again a completely different view of the world relatively expanding monetary policy that pushed price of assets up and at some point this will go down when the ECB will decide to raise interest rates then yoga while will go down again and that will be yeah this is again an artifact of the price of housing so at some point that's a correction I make we recorded so some somebody can tell me if I'm wrong in ten years KVLY will be gone with the wind because this is due to the price of housing which goes up and down in italiano you see that in France the prices of houses grow in Italy if you have a house you have to set it out with a 3050 percent discount so that L has verified it's not just flat with its declining so actually it takes a long term to actually take a snapshot of the situation but in the present situation the Italian economy is in a big crisis and that is especially so because of the housing market so that created a big crisis for all the banks do you think that this real estate crisis is going to come to an end or is it going to be present unlike in France and Spain Spain's or an important a crisis in the property but it demolished the number of houses so as not to see their decrease in the price of houses for the question I think the situation in Italy is different from France and I know it's pretty less well so I didn't want to touch it too much so it's difficult to make predictions on that the what we can be confident is that in the long run things will return to normal but of course in the long run it run time and we are in a sort of a normal situations in which for instance in some countries the price of housing declines plane you said Italy in France it went up despite the crisis and if I connect that to the questions before it's because in the context of the financial crisis real estate was an asset sort of relatively safe assets and people who have liquidity and big liquidity they didn't want to take risk of bankruptcy so they bought houses or apartments in big cities London Paris and maybe not in less liquid markets so that was the paradox where the price of housing despite the crisis it went up it went down a little bit in 2007 in France by 10% 15% but then immediately after it went up when the financial crisis started to threaten the banks so the financial cycle and the housing cycles are quite correlated but not in the way I would have expected before and so to come back on Natalia I think the the main issue comes from the fact that too many people own their houses a good economy is an economy in which people could move from one place to another relatively fast and this is always the case it's easier if you rent if you have a house you love it because it's your family house but then that region declines then it's rationally optimal to move and sell it but if everyone does the same at the same time then you have to face a big capital loss so that's why in terms of public policy recommendation I would say never encourage people to buy the develop good until market which is freed enough so that every young people can live and work where they want and finishing a study for France had an amount on mobility of your young people it turns out that it's very difficult for young people to rent because they don't have good jobs they don't have them they have temporary contract but not permanent contracts so nobody wants to rent to them and so it's we have a sort of trap and again that's the connection between the economy and the housing market which become a sort of bottleneck of of the economy so I have a question about the US market before the subprime crisis you could buy a house like a 100,000 house within 100,000 mortgage but if the price of the house doubled you could so to speak cash the increasing going to the bank and say ok my house now it's market price is 200,000 so please give me $50,000 more so you do not earn only the rent but also you could cash the price increase so does it challenge your conclusion your approach or not I don't know I think that the there are some precautionary policies that have not been very effective in the US indeed people could buy with with no upfront payment or most and that's not a good idea because it increased the volatility of the economy and that is sort of amplification of shocks when everything goes well people buy houses at an incredible price they have no thing in they have to pay for the mortgage for a couple of years but at some point the economy gets into a depression a big one like in 2007 then people have still the depth but they don't have the collateral because the the collateral is the house and that house as has no value anymore and so you come to these situations of poor people being addicted foreclosures and and so on so that means that we we need to rest refrain banks from making too many credits we need to refrain the states to push for buying and we need to restrain people refrain people from buying at any price and that means public police intervention that wise one thinking that one should protect people against themselves somehow the attempt on Quora Vampira demand a there's type there's time for a couple more questions one two three that's all I'm going to ask a question Italian can you go back to something you said earlier on you said that the real estate is some is the house where you live in so it is not just about an investment but based on what we we heard I believe that at the top 1% invest in areas where the price of houses climb up such as Rome Paris London whereas the houses that have lost value that didn't see any increase in terms of value are the ones owned by the weakest by the remaining 90% so there's no capital gain to be obtained when selling those houses and basically the richer are going to have a greater greater property more valuable property and the poorer will see a reduction in the value of their houses not as simple as one simple indicator can show the KVLY is just a simplistic indicator what I just claim is that it's difficult to interpret it as in terms of self perpetuating inequality what you say is that if you own some if I understood correctly that if you owns and if you're super rich you can diversify pretty well if you're who are middle-class and you buy a house then you cannot diversify at all and so it could be worth more because you have less diversification and I free agree with this and we are in total agreement there so this only says one thing which is KY is not a very good measure of these disorders economic disorders that we tend to think about and that's not the best proxy for capital wealth accumulation it's more or less the same question actually so I was wondering just in one of your graphs you show that the price of houses increase the of around 100 percent in less than a decade right and that's a huge capital gain for someone who invested in houses in 2001 for example in this case I think wickedest disease could be wrap right if this return on capital is much more and it is much bigger than the growth isn't it so what this shows for sure is that there is an intergenerational component of inequality so that is if you are now 55 60 and you bought 25 years ago then this trend is very good for you because you go at a low price and know you are on the pile of money no question about that so again the fact that you don't intend to sell doesn't and means that you have not accumulated a lot of wealth you bought in the 70s it had little value you do have it now in 19 2010 does it be your value but you have not become super rich is still the same apartment it's still the same house okay so there's not been this process of snowball you know this accumulation of capital of course you are richer I would say technically in the cross sections we have older people or hit sure because of the price of housing then young people that have gone 20 years late and so they have to face this in prices and at the same time for that exact reason the fact that the fact that the price of housing goes down is a good news for young people because so you're going to say yes but they will inherit less from their parents okay but at some point there is no gains there are losses from any change in the economy any price changes will lead to distributional effects agreement with that the question is the interpretation one can make out of it and again I don't mean that we should not worry at all about inequality there are inequalities and there are transfers between generations which are probably extreme in that particular but we should not worry about the fact that the economy is going to be processed by a few because this doesn't tell us that story it tells a different story that an increase in the price of housing is good for my parents it's good for me because I'm getting older it's not good for young people and when you will go down that will be the opposite so there are always distributional consequences of any trend but it's not a process data that is out of control okay so again I take the same analogy as in the beginning the economy is something producing energy plus some kind of you know side effects that have bad consequences sometimes but that process is not out of control I don't think so when Conquest conclusion a quasi received well with this reassuring words I think we can close the meeting so the real estate market is not pointing to a huge problem if we look for example of the salaries of the top 1% then we certainly see a huge problem so if you're interested in subject if you're not interested in going through all the papers in this website website and the website that he presented there's a summary of what was said LeBeau tip dot info present also a summary of the report of the works by a TN and tomorrow so if you're interested please go back to that so I'd like to thank the investment everything not everything it is fine as the gentleman says but at least we've understood something more has to look at what is not going back well thank you