Pandemic Left British Households Economy Over $1 Trillion Richer

Sam Walkinshaw was just months into a new job as a pilot when the coronavirus grounded flights last year. Since then, she’s been living off the government’s furlough program, which is now coming to an end.

Like hundreds of thousands of other Britons, it’s not clear what will happen to her livelihood. She knows the aviation industry is vulnerable to cuts. But the Covid-19 cloud has one silver lining: the soaring value of her home.

The pandemic has resulted in a stark paradox in Britain: the worst of times for public health, job security and the economy has turned into the best of times for wealth creation—provided you held the assets.

The country has suffered the highest death toll in Western Europe and saw the deepest recession of any of the Group of Seven economies. Yet, total household wealth surged by about 890 billion pounds ($1.2 trillion) since the pandemic started, or 6%, according to analysis of Office for National Statistics and YouGov Plc data by the Resolution Foundation.

Much of the increase has come from the U.K.’s record-breaking housing boom, ballooning the value of the average British person’s holdings to an extent unseen in any downturn since the 1950s.

Financial Gulf

The rich are becoming richer as asset prices soar

With inflated asset prices and the cost of borrowing at all-time lows, the disparity between the financial devastation among parts of the population and the rapidly accumulating paper wealth among others is not unique to the U.K. Wealth per adult globally has risen to a record $80,000, according to a report by Credit Suisse in June.

Yet Britain is at a political and social juncture that stands out after leaving the European Union. The government’s key policy is to “level up” regions and economic outcomes.

House price increases picked up momentum again in August, a report showed on Sept. 7. The catalysts have been low interest rates, supply shortages, savings accumulated during lockdowns and demand for larger homes away from big cities in places such as the Cotswolds where Walkinshaw lives.

The 49-year-old picked her home in southwest England for its rural location and its accessibility to the airport where she flew from. Its value jumped 30% since she bought it five years ago, much of that over the past 18 months. It’s now worth about 350,000 pounds. Even if she’s forced to sell, she would have about 75,000 pounds profit to bank.

“It has been a bit nuts around here, and because we’re quite entry level, I think has made it even more so,” said Walkinshaw. “The irony is that I wouldn’t be able to afford to buy my house now.”

Household wealth surged by more than 50,000 pounds on average for the richest families, according to the Resolution Foundation, with house prices jumping as much as 13% and pension investments buoyed by rising stock markets. For the poorest 30% of households, that average increased by a mere 86 pounds per adult. By comparison, home values tumbled by 15% in the wake of the 2008 global financial crisis, and household wealth stagnated.

Home Advantage

Wealthiest areas have led England’s house buying frenzy

That’s adding to concern about the widening inequalities that Prime Minister Boris Johnson has promised to address. This month, he reneged on his Conservative Party’s election manifesto pledge not to raise taxes by pushing an increase in National Insurance social security contributions through parliament. The extra 12 billion pounds a year will be used to fund social care and improve the health service.

Critics, including many within his party, say it puts the burden on younger workers rather than older, richer homeowners. “This remains a tax which will be overwhelmingly borne by workers with very little coming from pensioners,” said Paul Johnson, director of the Institute for Fiscal Studies.

Indeed, at the heart of the U.K. inequalities is the housing market and the ability of the younger generation to accumulate wealth. With sub-inflation interest rates for savings, buying a place to live is the surest way of achieving prosperity—or to get out of a financial predicament. About 60% of mortgaged homeowners are aged between 35 and 54 years old, and the average household income for first-time buyers leapt to 55,000 pounds in the first quarter of the year.

Retired grocery salesman David Thorpe is among those homeowners who used his cash cow to raise money.

Like many, he calls this year one to forget. His wife was hospitalized with Covid-19 and their daughter entered an expensive divorce and needed funds urgently. The 74-year-old from Nottingham in central England released some of their accumulated equity. “It solved the immediate problem,” he said.

That’s not an option for others. Some 44% of potential first-time buyers postponed their plans in 2020, according to a Santander survey. Just 19% of renters had enough savings to put down a 5% deposit for an average home in their region, Bank of England official Jon Cunliffe said in a speech in May this year. The same proportion of renters are in arrears with rent or bills.

There’s also the troubling sign of evictions starting to filter through the legal system after a ban was lifted earlier this year, said Jacky Peacock, who runs Advice 4 Renters in the London district of Brent. With the end of the furlough program, she worries they could proliferate.

Arturas Stanevskis is one of the people Peacock’s organization has helped. At the age of 55 and having entered the lockdown in between jobs, staying afloat is still a far greater concern than owning a property. He found out his landlord had changed the way electricity was charged, adding almost 100 pounds to his monthly bill before being able to renegotiate with the help of Advice 4 Renters.

“There was no work, no money—it was very, very bad,” said Stanevskis. “I used to earn good money or fairly good money, but it’s still not easy to save.” Buying a home would require him to win the lottery, he said.

In 1983, when Nationwide Building Society first started recording the data, house prices were 3.4 times average earnings in the U.K. That ratio has since almost doubled to 6.6 times, making the last quarter the most unaffordable period ever to buy housing in the U.K.

Specialist lender Generation Home, which started during the pandemic, is trying to address the hurdles for first time buyers, advising on the easiest ways for parents to gift their children money toward getting into the property market.

“Getting off the rental treadmill, it’s financially transformational for people,” said Will Rice, the company’s co-founder. But home values don’t encourage doing so without the help of family or a partner. “If you’re one individual, it’s essentially impossible” without being in the top percentile of earners in the country, he said.