Transcript Issues in the measurement of wealth

Issues in the measurement of
wealth
Anne Harrison
Towards official balance sheet
estimates for South Africa’s
household sector
Janine Aron, John Muellbauer and
Johan Prinsloo
Congratulations!
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Of interest to both macro and micro
Academic - govt official estimates
Technical – pragmatic
Emerging country study – with lessons for
some more advanced countries
Outline of paper
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Why is this interesting?
How did we do it?
How could the work be improved?
Analysis of the results
1990 to 2003
• Household consumption relative to GDP up
from 56% to 65%
• Gross saving to GDP down from 24.4% to
16%
• Gross saving of households down from
6.5% to 3.5%
Aim
• ..to draw lessons for emerging market
countries from South Africa, not only in
terms of how to create balance sheets, but
also of how the liquid and illiquid asset
composition can alter over time as markets
deepen
Builds on
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Earlier work by Aron and Mullbauer
Data from quarterly bulletin of SARB
Money and banking stats and NA
Methodology of UK ONS
Non-financial assets
• Housing – land is one third of value of
housing on it
• Other buildings – land about 14%
• Other fixed assets - small
1975
1990
2003
Housing
18.6
136.9
617.2
Other
17.4
82.6
181.6
Total
36.0
219.5
798.8
Financial assets & liabilites
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Deposits –funds offshore illegally
Pensions
Equity
Mortgages
Consumer credit
– Loans – micro finance
Pensions
• Assets of pension funds or liabilities to
pensioners?
• Increase in household wealth or reduction
of under-funding?
• Hgl or defined benefit schemes?
Possibly..
• increase in household wealth may be
overstated
• decline in wealth to income ratio may be
understated
Consolidation
• direct investment in shares
• indirect via unit trusts (mutuals) or pensions
But masks..
• household attitude to risk
• functioning of financial markets
• would hamper extension to other sectors
• regrettable for micro finance
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is there a lesson here for UK?
Trends in assets /liabilites
• Income increases
• Spending increases faster
• Additions to wealth are slower
• What about unearned component?
• Liabilities increase with financial
liberalisation
Basic story
• increase in housing
• increase in pensions assets at cost of more
direct investment
Conclusion
• lack of balance sheet data for households
hampers effective assessment of household
consumption behaviour and how country’s
national wealth is managed
What else?
• Pensions and housing dominate wealth
• Could these two only be analysed by
quintile?
Housing wealth in Finland
Sami Niemaläinen
Taru Sandström
Markku Säylä
Veli-Matti Törmälehto
Applause
• Openly examines discrepancies between
micro and macro data
• Shows many of these are due to conceptual
differences
• Examines how to reconcile these
Outline of paper
• Why is this interesting?
• How did we do it?
• How could it be improved?
Three sources
• ”National accounts”
• Financial accounts
• Household wealth survey
National accounts
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All dwellings
Not land underneath
Cumulates from past data
Sales of existing houses not tracked
Repairs and maintenance
Nice quote
• The needs of statistics are not ranked top in
the priority lists of municipal authorities…
Financial accounts
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Includes buildings and land
Floor area times market price
May exclude garages etc.
Difficult to identify owners
Household wealth survey
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Does not include institutional households
Deceased persons
(NPISH)
Self-valuation
Houses owned and occupied by households
All houses available
All buildings owned
by households
What do we want?
• NA - estimates of rent on dwellings
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- estimates of income from housing
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- estimates of depreciation
• FA - estimates of wealth
• HSW – estimates of household wealth
What do we have?
NA
FA
HWS
Dwellings
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Free-time houses
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Land
Free-time houses
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Results
• Despite all reservations on comparisons,
can make reasonable assesment (figure 6,
page 28)
• NA figures look rather low
• HWS highest (optimism on house prices?)
• FA not far short of HWS
Recommendations
• Define household wealth
• Reconcile NA and FA (and HWS)
What about..
• Free-time (holiday) houses?
• Houses owned abroad?
• Houses owned by non-residents?
• (South Africa also)
Why do we buy houses?
• Because they are a ”good investment”
• May buy larger than really need
• May buy to let
Questions
• Do houses prices vary or only locations, ie
price of underlying land?
• Do houses meet needs only or represent
deliberate investment decisions?
• Life length and maintenance
Housing
• Fertile field for continuing exploration on
both micro and macro side
• Financial aspects should not be overlooked
• Houses may be used as pension equity
• Wealth aspects as important as flows