Is Britain wealthier than Germany?

15th December 2011

The UK media is in masochistic mood and the UBS report went against the current vogue for self-flagellation:  Witness this hyperbole: "A trillion and a half is such a big a number that most people probably wouldn't even try getting their heads around it. But that is the total level of personal debt owed by the 50 million or so British adults. Per head of population, it qualifies us for the dubious honour of the most indebted nation on earth." 

The UBS analyst argued, controversially, that because much of UK debt was linked to buying homes, it was not the sign of reckless borrowing: "UBS says: "Most UK household debt is mortgage related, and a typical household buys a home to secure a safe future for itself in retirement. Put differently, a homeowning household has protected itself from any mismatch between rental payments and pension income during retirement.

"This can only happen if the household takes on a debt during its working life, so debt levels are high. That characterises UK households as prudent, not reckless. The alternative is a household that may have to depend on the state for housing during retirement."

This matters because high consumer debt levels are routinely given as the reason why the UK cannot grow, yet they may actually be contributing to individual's long-term security: "Mortgages contribute to long term wealth as over time they are paid off and people end up with a house whereas those renting do not and end up poorer. So they're not classing debt as an asset no, and the €375,000 average UK household asset figure is including household debt. The UK far from being the most indebted country in the world is in fact one of the very wealthiest." 

UBS's comments drew rancour: Community commenter, Nexusfast123 said in response to the Telegraph article:

"Putting all of your resources into property is a self-defeating illusion as it diverts investment from other things that are productive – this is in terms of producing products that can be sold overseas and accumulating productive capital like trained people, factories, etc." 

It also drew plenty of anecdotal speculation: pumpernickel on the same site:

"Well, I am staying in Britain at the moment and had a look at property prices in the South East, 50 miles or so outside London. Taking also building quality into account I would say that the relation between UK and German properties outside the big cities is 3 : 1. On an even playing field UK properties would have to lose 66% of their values to be in sync with German properties. My conclusion is that UK properties are artificially over priced in a smart move to give Britons the impression that they are rich." 

And plenty of people quibbled with the stats themselves: lookingforclues, from the Motley Fool said:

"The problem with looking at net assets after a credit bubble is that it will always appear very high. Think about it – there has been a dramatic rise in the demand for assets which have, as a consequence, been continuously bid up. Take property for example which is where a lot of the 'action' has happened. Any time someone comes along with a barrow-load of debt to compete with others who have also been given barrow-loads of debt to buy a house then the price of that house will be forced higher. But the important point is that all comparable houses in the area will also have been magically driven up as the sale acts as a new marker for the market. But only the house that changed hands will have the increase in price netted off with the debt used to buy it. All the other houses can be marked as an increase in asset values with no corresponding debt increase. Voila, up go net assets and we're all that much wealthier."

Equally, arthur_dent, also on the Motley Fool, suggests that the statistics are misleading: "Average incomes and wealth in the US have steadily increased over the last 30 years. Unfortunately for 90% of the population, there have been no net gain in income or wealth. The average is a bit meaningless in this case. For the top 1%, incomes grew 224%, and for the top .1%, incomes grew 390%.

1 thought on “Is Britain wealthier than Germany?”

  1. Sandra says:

    The British economy is the 6th largest national economy in the world, but the 3rd largest in Europe. As for the housing situation in Great Britian, if the houses are over evaluated it would be the same as the Japanese situation with their land when they said the value of the land was worth way more than it was really was and it caused a collapse.

    “No one has a crystal ball but looking at the Federal Reserve’s quantitative easing program, growth of lower paying jobs, baby boomers retiring, and the massive amount of excess housing inventory we start to see why Japan’s post-bubble real estate market is very likely to occur in the United States.”

    “Japan urban land prices are back to levels last seen in the 1980s. You have to ask if there are parallels to our current condition. The first point we all have to agree on is that both economies had extraordinarily large real estate bubbles. For the United States the answer to this assumption is a big yes. We can run off a check list of how our real estate markets run similarities:

    -Massive real estate bubble (check)

    -Central bank bailing out banks (check)

    -Bailed out banks keep bad real estate loans on their books at inflated values (check)

    -Government taking on higher and higher levels of debt relative to GDP (check)

    -Employment situation stabilizes with less secure labor force (check)

    -Home prices remain stagnant (check)”

    (Doctor Housing Bubble, the 20 Year Japanese Market in Real Estate

    I think everyone knows it’s better to own a home than it is to rent, that’s kind of a no brainer, but life happens too. There are things in life that can cause you to lose houses, divorce, sickness, loss of a job, an aging parent, and our young people today never seem to stop and think about the what if. Not only that they seem to think oh that will never happen to me, and you don’t know that, you could be walking down the street tomorrow and get hit by a car.

    This is why you will see them run out and pay 700,000 for a house, then the what if happens and they struggle to meet their obligations.

    Great Britian is not wealthier than Germany or France.

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