The UK’s obsession with housing is to blame for stunting GDP growth, a report from the National Institute of Economic and Social Research (NIESR) suggests.
The report, conducted on behalf of the Association of British Insurers, concluded that compared to other advanced nations households hold an unusually large share of wealth in ‘unproductive’ housing assets.
More ‘productive’ assets would include investment in broadband, transport, machinery and software – which could help raise the UK GDP growth from its current level of 1.8%.
Dr Monique Ebell, NIESR’s associate research director who co-authored the report, said: “This research helps us to understand how much UK households’ overreliance on housing as a form of saving and investment is affecting their own income at retirement, and the UK economy as a whole.
“Policy makers would do well to examine more closely the relationship between the UK’s long standing productivity weakness and incentives to invest in housing rather than productive assets.”
The report found that people who have a mortgage tend to put less into their savings for a pension, even if they were paying significant rental costs before.
In the previous decades an increasing proportion of 20-30 year olds have started saving explicitly for house purchases.
Over the same period fewer contributed to a private pension – outlining how owing to the difficulty of getting on the housing ladder people are focusing on property above all else.
Yvonne Braun, ABI’s director of policy, long-term savings, said: “The way savings in pensions are actively invested in businesses and the real economy is good for jobs, productivity and GDP growth.
“The research also raises questions about the impact the high cost of housing in the UK has on people’s ability to save for retirement.
“As important as a home is, it can’t replace a retirement savings plan.
“More work and research in this area is vital so we can develop a more balanced and holistic approach to all forms of long-term savings.”