Capital gains as a driver of housing wealth inequality

Blog by Barend Wind & Lina Hedman

26 Oct 2017, 10:18 a.m.
Barend Wind, Lina Hedman



Across the European continent, a fear is voiced that housing wealth is on its way of becoming one of the major cleavage lines in society. As house prices increase rapidly in the popular neighbourhoods of larger urban agglomerations, it becomes increasingly difficult for youngsters and low- and middle-income households to enter the market for homeownership. The line of reasoning is familiar to the debate about the emergence of housing classes in the UK in the 1970s and 1980s. Back in those days, housing researchers argued that housing classes would eventually become more important than classic social classes. Authors like Rex and Moore (1967), Saunders (1984) and Thorns (1981) witnessed a house price boom in the UK, cutting through the traditional class society along the lines of housing tenure. Homeownership would make (sometimes even working-class) households asset-rich, whereas rental housing would keep them asset-poor. The debate silenced after a house price slump in the beginning of the 1990s.


    Capital accumulation is one of the main reasons why governments have encouraged homeownership. Indeed is housing wealth the largest form of wealth for a majority of the population. The Northern European countries are prime examples of countries that have stimulated homeownership through subsidisation and mortgage finance deregulation, which has diversified the social profile of homeownership and resulted in an upswing of house prices. Has the ‘rising tide’ indeed ‘lifted all boats’? Or did households with a higher socio-economic status profit more, which is indicated by Chris Hamnett (1999) on the basis of evidence from the UK?


    Housing wealth inequality should be understood from the process of housing wealth accumulation. Housing wealth accumulation is limited to homeowners and in first instance determined by the purchase price of the dwelling and the mortgage amortisation. These factors are mainly influenced by the income. Inequalities on the labour market translate therefore into housing wealth inequality. Second, housing wealth accumulation is the outcome of capital gains, determined by the housing market through house price developments in the area. When social groups do not live fully segregated, capital gains might exacerbate or mitigate the housing wealth inequality originating from the labour market. In other words, the housing choices that households make, might have a large impact on the accumulation of wealth.


    In our study, we follow the housing pathways of 70,000 Swedes, living in the three largest metropolitan areas and the ten next-largest cities between 1995 and 2010. We connect these housing pathways to the total capital gain realized in the course of this period. In line with Hamnett (1999), we find that higher-income and native-Swedish individuals experience larger capital gains (a larger relative return on their initial investment in housing). When we take the housing pathways of different social groups into account, we find that the housing pathways of native Swedes and high-income individuals are characterized by earlier moves into homeownership (longer exposure), and into neighbourhoods with an increasing share of residents with a university degree and / or a decreasing share of migrants. To illustrate this point: Between 1996 and 2010, a low-income, low-educated, male migrant living in Stockholm (married, with children) lost more than half his housing wealth according to predictions by the regression model, whereas a corresponding individual who has a high income, is highly-educated and a native Swede almost doubled his housing wealth.


    After three decades of market-oriented reforms on the Swedish housing market, both gentrification and low-income filtering have intensified (Hedin et al., 2011). The housing pathways of higher-income individuals who have clustered together and have contributed to gentrification, have proven to be vary profitable. For low-income individuals who cluster together in neighbourhoods with a low socio-economic status due to financial constraints, housing pathways are far less profitable. If governments aim to contribute to wealth accumulation through homeownership, it debatable whether the market-oriented proliferation of this tenure is the way to go.



Hamnett, C. (1999). Winners and Losers: The Housing Market in Modern Britain. London: UCL Press.

Hedin, K., Clark, E., Lundholm, E., and Malmberg, G. (2012). Neoliberalization of housing in Sweden: Gentrification, filtering, and social polarization. Annals of the Association of American Geographers, 102(2), 443-463.

Rex, J. and Moore, R. (1967). Race, community and con´Čéict: Oxford: Oxford University Press.

Saunders, P. (1984). Beyond housing classes: the sociological significance of private property rights in means of consumption. International Journal of Urban and Regional Research, 8(2), 202-227.

Thorns, D.C. (1981). The implications of differential rates of capital gain from owner occupation for the formation and development of housing classes. International Journal of Urban and Regional Research, 5(2), 205-217.



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