The Political Economy of Ownership: Housing Markets and the Welfare State

The major economic story of the last decade has been the surge and collapse of house prices worldwide. Yet political economists have had little to say about how this critical phenomenon affects citizens’ welfare and their demands from government. This article develops a novel theoretical argument linking housing prices to social policy preferences and policy outcomes. I argue that homeowners, particularly those experiencing rapid house price appreciation, will become less supportive of social insurance policies since their houses act as a form of self-supplied private insurance against job and income loss. Political parties that represent homeowners will, following these preferences, cut social insurance spending substantially during housing booms. I test these propositions using both micro-data on social preferences from surveys in the USA, UK, and Germany, and macro-data of national social spending for 18 countries between 1975 and 2001.