Housing Expenditures and Income Inequality

70 Pages Posted: 27 Nov 2018 Last revised: 9 Jan 2019

See all articles by Christian Dustmann

Christian Dustmann

University College London; Institute for Fiscal Studies (IFS); Centre for Economic Policy Research (CEPR)

Bernd Fitzenberger

Humboldt University of Berlin - School of Business and Economics

Markus Zimmermann

Humboldt University of Berlin - Institute for Statistics and Econometrics

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Date Written: November 1, 2018

Abstract

In this paper, we show that, in terms of real disposable income, changes in housing expenditures dramatically exacerbate the trend of income inequality that has risen sharply in Germany since the mid-1990s. More specifically, whereas the 50/10 ratio of net household income increases by 22 percentage points (pp) between 1993 and 2013, it increases by 62 pp for income net of housing expenditures. At the same time, the income share of housing expenditures rises disproportionally for the bottom income quintile and falls for the top quintile. Factors contributing to these trends include a decline in the relative costs of homeownership versus renting, changes in household structure, and residential mobility toward larger cities. Younger cohorts spend more on housing and save less than older cohorts did at the same age, with possibly negative consequences for wealth accumulation, particularly for those at the bottom of the income distribution.

Keywords: income inequality, housing expenditures

JEL Classification: D31, R21

Suggested Citation

Dustmann, Christian and Fitzenberger, Bernd and Zimmermann, Markus, Housing Expenditures and Income Inequality (November 1, 2018). ZEW - Centre for European Economic Research Discussion Paper No. 18-048, Available at SSRN: https://ssrn.com/abstract=3289094 or http://dx.doi.org/10.2139/ssrn.3289094

Christian Dustmann (Contact Author)

University College London ( email )

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Institute for Fiscal Studies (IFS)

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United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Bernd Fitzenberger

Humboldt University of Berlin - School of Business and Economics ( email )

Spandauer Str. 1
Berlin, D-10099
Germany

Markus Zimmermann

Humboldt University of Berlin - Institute for Statistics and Econometrics ( email )

Spandauer Str. 1
Berlin, D-10178
Germany

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