Global housing markets have come under scrutiny for a number of concerns, including affordability, homelessness, and the contribution of housing to growing inequality. This column introduces a conceptual framework that integrates the consumption, capital, and locational aspects of housing to highlight how housing both reflects and drives inequality. The authors suggest numerous areas in which additional modelling could help evaluate housing policy aimed at tackling housing inequality.
The housing literature has exploded over the last two decades. First, the Great Recession of 2007-2009 motivated a search for a deeper understanding of the critical role of housing, after subprime mortgages were blamed for the financial crisis that led to the recession. Second, there has been a surge in interest, partly as a result of new tools and new data, in urban and regional economics, where the economics of housing has always played an important role. Third, interest in quantitative housing policy design has been motivated by the increasing welfare inequality (including homelessness) that has taken hold in many countries and has drawn attention to housing inequality. It has challenged traditional approaches to many economic issues.
It is thus not surprising that global housing markets have come under scrutiny for a number of concerns, including in particular affordability, homelessness, and the contribution of housing to growing inequality. The social economics literature has emphasised locational advantages of housing that extend beyond individual outcomes, influencing social mobility through education, employment, and social networks. In particular, Chetty et al. (2018) demonstrate how neighbourhoods shape economic and social mobility, showing that children from disadvantaged areas face significant barriers to success due to limited access to quality schools and networks.
Recent research has delved into various issues of housing wealth and its implications for economic inequality. This includes, for example, the significant variations in homeownership rates and housing wealth across countries (Le Blanc et al. 2025) and the intergenerational transmission of housing wealth (Daysal et al. 2023). Recent contributions have also revived the attention to Rognlie (2015), who shows that the increase in the aggregate wealth-to-income ratio documented by Piketty (2014) has been entirely driven by housing capital, and especially by the increase in the return to housing capital due to scarcity of desirable urban land. An important message is that policymakers concerned about inequality should monitor housing costs, and particularly those that may be linked to restrictions on land use and residential construction, as these factors contribute to housing scarcity. Some of these issues have recently been addressed by Glaeser and Gyurko (2025) and Han and Baum-Snow (2024).
The aim of our recent paper (Ioannides and Ngai 2025) is to elucidate the links between housing and inequality, and to argue that those links go in both directions. We propose a conceptual framework that integrates the consumption, capital, and locational aspects of housing to explore its role in inequality. Housing consumption reflects inequality, with richer and wealthier households securing higher-quality homes and better locations. Locational advantages enter human capital investment and therefore extend beyond individual outcomes. They influence social mobility through education, employment, and social networks. Additionally, housing as a capital asset allows homeowners to leverage wealth, enabling further investments but also exposing them to financial risks tied to market fluctuations. This framework underscores how housing both reflects and drives inequality, making it a critical area for public policy. While the former force is straightforward to appreciate, the latter is rather subtle. It may be better understood through the prism of a memberships theory of inequality (Durlauf (2001), which we adopt. We may underscore the critical role of our framework in clarifying the impact of housing on inequality as follows. Housing would not affect inequality only if wage rates and human capital accumulation were independent of individuals’ location, and adjusting housing consumption or location were costless. In all other instances, housing impacts inequality.
Over recent decades, real house prices and rents have been growing (see Knoll et al. 2017 for evidence in 14 advanced economies). Escalating housing costs have disproportionately impacted low-income households. The OECD (2020) documents that the housing expenditure share across households in 20 OECD countries in 2015 was 37% for households in the bottom income quintile, compared to 25% for the top quintile. These shares have increased from 2005 by 9 percentage points for the bottom compared to the 3 percentage points for the top. The picture is even more stark for renters, with a third of renters spending over 40% of their income on housing. Research indicates that housing demand is both income- and price-inelastic, implying that poorer households spend a larger and a growing share of their income on housing as housing, leaving little for other expenditures or investment.
Housing wealth accounts for more than half of household assets in many OECD countries but remains unevenly distributed. The top wealth quintile holds the lion’s share, while the bottom quintile struggles to access homeownership. Rising property values disproportionately benefit those who already own homes, further widening the wealth gap. Parental assistance – through gifts or inheritance – plays a significant role in young households’ ability to purchase homes, perpetuating intergenerational wealth inequality. Homeownership provides a pathway to wealth but also exposes households to significant risks. Housing serves as collateral for borrowing, enabling investment in education and other opportunities. However, this leverage also amplifies financial vulnerability during market downturns. Younger households face higher barriers to entry and greater exposure to housing price fluctuations. This dynamic creates a generational divide, with older homeowners reaping the benefits of rising prices while younger individuals struggle to enter the market.
Evaluations of welfare and therefore the consequences for inequality of housing decisions face considerable difficulties because the returns to housing assets vary both within and across countries. As Amaral et al. (2023) show using a new city-level data set covering 15 OECD countries over 150 years, total returns in large urban agglomerations are close to 100 basis points lower per year than in other parts of the same country. They attribute such difference to differences in risk and liquidity.
Jorda et al. (2019) report substantial differences in housing returns across countries. In particular, real returns to housing as an asset exceed the return to equity in individual countries including Belgium, Denmark, France, Germany, Japan, Netherlands, Norway, Portugal, and Sweden. However, the opposite is true for the US (6.1% versus 8.5%) and the UK (5.4% versus 6.8%).
Neighbourhood effects extend beyond individual households, shaping broader social and economic outcomes. Access to high-quality neighbourhoods, typically defined in terms of better schools, better jobs and information about them, and amenities, is a key determinant of upward mobility (Chetty and Hendren 2018). However, economic and racial segregation in housing markets limits opportunities for disadvantaged groups. We highlight how evictions and foreclosures disproportionately impact lower-income families, often leading to homelessness and long-term instability. These trends underscore the vulnerability of renters and low-income homeowners in volatile housing markets.
Systemic racial discrimination has long shaped housing markets, contributing to persistent wealth gaps. Practices such as redlining, discriminatory lending, discriminatory behaviour of intermediaries, and exclusionary zoning have historically marginalised minority groups, limiting their access to homeownership and quality neighbourhoods. Such structural barriers may operate in ways that are hard to detect, continuing to exacerbate racial inequality and making it imperative for policymakers to address these disparities.
While our paper does not formally deal with policy issues, we do suggest numerous areas in which additional modelling will help evaluate housing policy aimed at tackling housing inequality. Most importantly, policymakers must adopt multifaceted strategies. Expanding affordable housing initiatives can alleviate financial burdens on low-income families. Revising tax policies – such as reducing mortgage interest deductions for high-income households – can help address wealth inequality. Strengthening anti-discrimination measures and reforming zoning laws to encourage diverse housing development are also critical steps. Finally, providing protections for renters, including eviction safeguards, without interfering with the efficiency of the housing market is an important avenue for policy research. These policy questions may be addressed by tools similar to those developed by labour market policy research. Our findings on how housing both reflects and perpetuates disparities make it a critical area for intervention if the objective is to create a more equal society. Without targeted reforms, housing will continue to serve as a significant driver of inequality, undermining efforts to create more equitable societies.
The operation of the housing market nowadays relies extensively on the web, with online search by prospective owners and especially by tenants having acquired a commanding presence relative to physical housing markets. Searches almost always start online in economies like that of the US. At the same time, working from home has developed into an important force affecting access to housing and urban land values. Future research must address how these considerations will continue to impinge upon the links between housing and inequality.
Source : VOXeu
