Daily Management Review

NIESR Report Suggests UK Is Potentially Being Made Poorer By Its Property Obsession


11/15/2017




NIESR Report Suggests UK Is Potentially Being Made Poorer By Its Property Obsession
A recent research suggests that there have been potentially damaging impacts on the pension savings and the larger UK economy by the crowding out of long term savings and investments due to craze for home ownership in the country.
 
a study by the National Institute of Economic and Social Research (NIESR) found that there is a 15 percent drop in the private pension income at the time of retirement for people and households that have a mortgage on homes as they tend to save less into funds like pensions. This is potentially the reason that compared to other advanced ad similar economies, more wealth has been tied up in housing by the UK households, the NIESR said.
 
among all of the advanced economies, the lowest rates of labor productivity and the lowest rates for business investment can be seen in the United Kingdom. Roughly 9.2 percent of the total GDP is attributed to machinery, equipment, intellectual property and other business investments in the UK whereas the next lowest investments in such aspects is attributed to Spain at 9.9 percent. For almost all other advanced economies that figure is over 10 percent. UK also has the third lowest percentage of business's share of private investment with respect to GDP at 66%. Only Spain and Canada have lower percentages. While Japan is the lowest in labor productivity, the UK is the joint lowest in that aspect along with Spain.
 
The rise in GDP would be by £55bn while the productivity would increase to 2.3 percent if the business share of total investments in the UK increases to 80 percent by 2020, the NIESR calculated. On the other hand, the GDP would increase by £90bn and the productivity would reach 3.8 percent if between the same period, the total private investment also managed to enhance from 14.2% to 16.8%, found the research which was funded by the Association of British Insurers.
 
Private investment is continued to be sucked into the UK property market even after years of efforts and promises by the UK government of rebalancing the economy in favor of long-term investment and manufacturing. The reduced capacity for growth of the UK economy has been attributed to the issue of low productivity by the Bank of England.
 
The poorer in the country seemed to be more obsessed with the idea of investing in housing, the NIESR said the research suggested. The report also suggested that in order to make retirement savings more attractive in comparison to property, changing of incentives should be considered by the government.
 
Dr Monique Ebell, NIESR’s Associate Research Director, said: "This research helps us to understand how much UK households’ over-reliance on housing as a form of saving and investment is affecting their own income at retirement and the UK economy. Policy makers would do well to examine more closely the relationship between the UK’s long-standing productivity weakness and incentives to invest in housing rather than productive assets."
 
(Source:www.digitallook.com)






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