STAFF NEWS & ANALYSIS
In England, Property Millionaires Are Booming
By Staff News & Analysis - June 05, 2013

Property prices turn one in five middle aged workers into paper millionaires … One in five middle aged people in Britain is a millionaire – on paper at least, a study of official figures shows. It has previously been estimated that around one in 10 people are living in millionaire households but the new analysis shows among some groups the figures is almost three times that. … In the South East of England almost a third of people in their 40s and 50s live in households with wealth counted in seven figures, boosted by the value of their home and pension pot. But the study, by the Office for National Statistics (ONS), also lays bare a sharp divide between north and south as well as between generations. It shows that five times as many children are growing up in households in the bottom wealth category as in the top. – UK Telegraph

Dominant Social Theme: England is rich.

Free-Market Analysis: What are we to make of all this? Britain is headed into a dreaded triple-dip recession and unemployment is not as high as in the Southern PIGS but it is quite high nonetheless, especially for the young. A debt crash threatens and regulations and taxes continue to rise as the not-quite-bankrupt British government struggles to cope.

And into this messy mix drops the factoid that many in England are millionaires. This tells us one of two things (or perhaps both). First, a millionaire is not what it once was. And, second, being a millionaire and having liquidity are two different things.

Having cash in one's house is comforting perhaps but real estate remains at the mercy of the market, which in Britain and England specifically is none too good. It is one thing to have equity in one's home, in other words, but another thing to have access to it.

One can always borrow against one's home, of course, but that isn't always the wisest thing to do; and in any event, banks are not as generous with loan dollars as they used to be. Here's more from the article:

While almost 60 per cent of middle aged people in the South East have built up at least half a million pounds in savings, pension and property wealth, in the North East, one in five of the same age group have little or no assets to rely on. And the study shows how people's wealth builds up through their working lives but drops off once they retire and begin using up their assets, in many cases on care.

It follows a study by analysts at the ONS last year showing that the south of England has 50 per cent more "millionaire" households than the rest of Britain put together. But the new findings compare the levels of wealth of households across the country and across generations for the first time. They are drawn from the ONS's Wealth and Assets survey, which attempted to measure the assets and debts of more than 46,000 people over a two-year period from 2008 to 2010.

The survey, the largest of its kind, involved asking householders the value of their home, as well as any holiday properties, and subtracting the amount still outstanding on their mortgage as well as estimating their pension pot. It has previously been estimated that around one in 10 people are living in millionaire households but the new analysis shows among some groups the figures is almost three times that.

It shows that six per cent of children under 15 and around 11 per cent of older teenagers and young adults in mainland Britain are growing up in families with total assets of £1 million or more. Among those in their late 20s and 30s – by which time most have set up their own homes – the proportion drops again to five per cent.

But among those aged 45 to 64, who have established careers and benefited from years of rising property prices before the financial crisis, 19 per cent have amassed more than £1 million in household wealth. In London the figure is 22 per cent and in the rest of the South East it reaches 28 per cent – almost twice that in the North East. Property prices turn one in five middle-aged workers into paper millionaires

… Ed Cox, director of IPPR North, said the figures showed a nation seemingly increasingly divided along lines of wealth and warned of the dangers of the property market in the south overheating. "We have always been a divided nation, this is something which is quite literally decades if not centuries old," he said. "But what concerns us most about these figures is the suggestion that that gap is actually widening and largely as a result of the property market." The ONS said the pattern reflected booming house prices in some parts of the country as well as pension savings but also showed how people's assets begin to dwindle after retirement.

It sounds to us like this is an old-fashioned property boom affecting one region in England in particular. If so, the Bank of England has set in motion yet another bubble to accompany the one that was so devastating five years ago. Mervyn King, like Ben Bernanke, is getting out when he can.

These property bubbles are not easy on an economy. They introduce glaring disparities, affect certain classes more than others, add significantly to individuals' net worth but then, if people are not careful, the inevitable downturn can leave them worse off than before.

The intention of this survey, perhaps, was to find out how well off people really are. But all that has been accomplished is to do so within a certain slice of time. The trouble with fiat money economies is that they are prone to sudden change – to booms and then to busts.

After Thoughts

Today's millionaire is tomorrow's near-pauper, as many have learned to their dismay, especially within the context of health issues which many retirees inevitably confront. Paring debts and investing cautiously within one's comfort zone is an essential part of navigating volatile times.

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