Household Real Wealth in OECD Countries

Massimo Coletta and Riccardo De Bonis(Bank of Italy)

OECD Working Party on Financial Statistics29 November - 1 December 2010

2

Motivation

• Non-financial assets make up, together with financial assets, household total wealth

• Real assets may impact on consumption (the “wealth effect”) and are a buffer against macroeconomic shocks

• In the aftermath of the recent crisis, statistics on real assets have become more relevant to better monitoring price movements and to detect bubbles that would threaten economic stability

• The Inter-Agency Group on Economic and Financial Statistics set up by the IMF has identified as area of data improvement also the sectoral balance sheets, particularly of households and non-financial corporations (recommendation #15)

3

Outline

1. Data

2. What do the data say?

3. Issues for discussion

4

1. Data

National statistics on real wealth are non homogeneous, because of different methodologies

Most of the OECD countries provide data on total household real assets and/or the component dwellings

A minority of countries also provides estimates of the value of land and, as a memo item, of durables

Probably the column “land” is not comparable across countries. In some countries the land is the “land underlying buildings” plus “the agricultural land” (e.g. France). In other countries the land includes only the agricultural land (e.g. Italy)

5

1. Data (follows)

• Some countries have estimates of real assets but the data are not transmitted to the OECD: e.g. Bank of Spain publishes statistics on its website

• According to the breakdown of the table 7HAL:– 9 OECD countries transmit both total real

assets and dwellings– 11 countries provide only the total or the

dwellings– 14 countries do not provide info on real assets

even partially

6

Data availability

7

2. What do the data say?

• The following table shows the ratio of household real wealth to disposable income for 20 countries

• We consider also countries that give only data on dwellings

• The hypothesis is that dwellings represent the larger component of household real wealth

8

Real wealth/disposable income

* Only dwellings

9

2. What do the data say?

We can distinguish countries into three groups• Six countries have a ratio around 2: e.g. the US,

Czech Republic, Denmark, Israel, Norway• Other countries have a ratio between 2 and 4: e.g.

Belgium, Canada, Japan, and Germany • A last group of nations has a ratio greater than 4:

Australia, New Zealand, the UK, France, Italy, and Spain. The highest value is found in Spain: it is very relevant considering that only dwellings are taken into account !

10

2. What do the data say?

Financial assets

• In most of the countries the ratio of household financial assets to disposable income is lower than 4 and/or smaller than real assets

• On the contrary Belgium, Canada, Denmark, Japan, the Netherlands, Switzerland, the UK and the US have higher financial wealth, that is often greater than real assets

11

2. What do the data say?

Net worth to gross disposable income• Finally we looked at the ratio of total net worth -

sum of net financial and real assets - to disposable income

• Australia, Israel and New Zealand are not computed because their financial data are not in the OECD website

• We adopted a threshold of 6 to select the wealthier countries

• 9 countries are above 6: Spain (an outstanding value!) but also the UK, Switzerland, Italy, Japan, and France.

12

Net worth to disposable income

13

3. Issues for discussion• In most of the countries real wealth is greater than financial

assets• Sometimes real wealth is negatively linked to the size of a

country (look at Norway, Fin, and the US) and positively to the population density, as it is in the UK, FR, and IT. But there are exceptions like Aus and NZ, where real assets are large

• Of course real assets are influenced by other causes: demographic trends, price bubbles, weight of finance etc.

• Should countries clarify some methodological issues? May the land be more important than dwellings, like in France and Japan?

• Are producer households an issue?

• Might new data change the economic interpretations?