Housing makes Brits worse off than Americans, research shows

A new briefing from the Social Market Foundation – authored by John Handley (See notes) – shows that 21% of Brits’ spending goes towards housing, as opposed to 17% for Americans.

Despite spending more on housing, Britons get much smaller homes than Americans, whose residences are 60% larger per resident than the average English dwelling. Housing is a large part of why Americans enjoy significantly higher living standards than Britons, the SMF paper shows.

The briefing comes at a time when the Bank of England has raised interest rates for the 14th consecutive time, bringing greater financial pressure for UK homeowners facing spiralling mortgage costs, and rental affordability is at its worst in a decade.

The US is 30% richer per person than the UK, adjusting for differences in cost of living, because of its higher productivity. As a result, the average American enjoys consuming more goods and services across almost all categories (except clothing and footwear), adjusting for the purchasing power of the different currencies (See note 2). The briefing shows that the gap in income has translated into a gap in living standards, which can be most starkly seen in three categories: housing, healthcare and transport.

Even though some spending by Americans is ‘wasteful’ – such as in healthcare and transport, where spending does not provide improved outcomes compared to the UK (See note 3) – it is undeniable that Brits are highly disadvantaged when it comes to housing. Britons devote a higher share of their overall spending to housing than Americans (21% vs. 17%) and face much higher housing costs than Americans (2.34 times the global average vs. 1.7 times the global average).

Fixing the UK’s broken market and getting the price level of housing down to US levels would enable the UK to consume 38% more housing per person – exceeding France, Germany, and Japan, the briefing notes. To address the gap in housing, the briefing recommends that the UK should increase the size and quality of its housing stock.

However, since some difference in living standards is likely to persist as long as the US remains significantly richer than the UK – the fundamental remedy to the vast difference in living standards is through investment to increase productivity, said John Handley, author of the briefing.

John Handley, the author of the paper, said:
“As the gap in per capita incomes between the US and the UK gains more media attention, it is important to bring it both into historical perspective and to understand the tangible differences in living conditions it creates. This report shows that the UK-US income gap has been roughly the same size for over a century, with average incomes in the US exceeding average incomes in the UK by about 30% since the 1890s.

 In terms of living standards, most of this difference is accounted for by healthcare, transportation, and housing. On the first two, there is a case to be made that the advantage is squandered by exceedingly poor mortality and traffic safety outcomes in the US. But for housing, the gap in living standards is stark: Britons pay almost as much as Americans for only 60% as much per capita floorspace. This report offers some tentative recommendations for addressing the long-running gap in trans-Atlantic gap in living standards.”

Notes

1. The briefing, Atlantic Aspirations, will be published at https://www.smf.co.uk/publications/uk-vs-us-living-standards/ on Wednesday 9^th August 2023. It is written in a personal capacity by John Handley, an economist at Ofcom specialising in data analytics.
2. The World Bank’s International Comparison Program defines purchasing power parity measures as follows: “PPPs convert different currencies to a common currency and, in the process of conversion, equalize their purchasing power by controlling for differences in price levels between economies. They provide a measure of what an economy’s local currency can buy in another economy.”
3. The briefing shows that some US spending on healthcare and transport is wasteful:
   1. Healthcare: while there are more GP visits and surgeries per person each year in the US than in the UK, life expectancy is lower.
   2. On transport, the gap between the US and the UK is driven by spending on cars and the cheaper cost of petrol. But this has negative social consequences, resulting in more road deaths and less walkable neighbourhoods.

Contact

• For media enquiries, please contact John Handley at jwhandley17@gmail.com