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Evening Standard
Evening Standard
Business
Daniel O'Boyle

Brits are poorer than Americans because we spend more on worse homes, Social Market Foundation think tank says

Britons are spending more than Americans for smaller homes and it’s making those in the UK worse off than their peers across the Atlantic, influential think tank the Social Market Foundation claims.

In a new report looking at the difference in wealth between the UK and US, the SMF noted that consumption in the US is around 30% higher than in the UK after cost-of-living differences between the countries are accounted for. Much of this difference is in healthcare and transportation, two areas where the SMF said it was not clear whether America’s greater consumption is actually leading to better outcomes.

However, it was a different story for housing.

“The gap in housing is a more direct reflection of dysfunction in the UK housing market,” the SMF said.

The survey found that those in the UK devote around 21% of their consumption spending towards their homes, compared to Americans devoting 17% of their own spend to housing.

Yet it noted that American homes are 60% bigger than their UK equivalents on average.

“The surefire way to increase real housing consumption is to increase the size and quality of the housing stock,” the report continued.

However, the think tank also added that investing in housing may have to come at the expense of investment elsewhere.

“In a full employment environment, building more housing means investing or consuming less elsewhere in the short- to medium-term,” the SMF said.

“That means making do with even less for a time in order to build a better future.”

The paper noted that other countries like France, Germany, and Japan also have smaller houses than the US, but in those cases, it appeared to be a matter of preference as spending on housing is lower.

The report also found that the gap in consumption between the US and UK has been fairly consistent over time, only increasing by about five percentage points since 2019 after more than a century of hovering somewhere around 30%.

“Recent coverage of the UK’s relative economic decline over the last decade tends to overlook just how persistent and consistent the gap to the US has been,” it said. “As a result, catastrophising may be inappropriate.”

But it went on to say: “Ultimately, as long as the UK’s productivity remains below peer countries, it is likely to continue to suffer from lower living standards. Without more investment – including business investment, residential investment, and public sector investment – it is hard to see a way out.”

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