5  A comparison with other OECD countries (continued)

Notable exceptions to the steadily upward trending ratio of household net wealth to disposable income are Japan, New Zealand and the United Kingdom. In Japan, household net wealth rose strongly over the second half of the 1980s, but then fell sharply during the 1990s. The increase during the 1980s was largely driven by real assets, although financial assets were also a contributing factor. In the second half of the 1980s, housing loans increased massively in Japan as a result of abundant liquidity due to loose monetary policy. However, liabilities rose at a slower rate than assets, leading to an increase in net wealth. The rate of accumulation of liabilities slowed markedly after 1990. The ratio of financial assets to disposable income continued to rise over the 1990s, but real assets dropped sharply, leading to a sharp decline in total household net wealth as a proportion of disposable income.

Household net wealth in the United Kingdom was also subject to large swings. As a percentage of disposable income, household net wealth rose over the second half of the 1980s, fell in the first half of the 1990s and rose strongly again in the latter half of the 1990s. Similar to Japan, the ratios of financial assets and liabilities to disposable income were generally trending upward.

The large swings in Japan and the United Kingdom and the upward trend in the other countries is in contrast to a fairly stable ratio of household net wealth to disposable income in New Zealand from 1985 to 1999. Over this period, New Zealand’s household net wealth as a proportion of disposable income fluctuated around 400 percent. It fell during the period of reforms in the mid-1980s and early 1990s, rising initially somewhat following the end of the economic downturn in 1992. New Zealand’s ratio of financial net wealth is also quite different to that in other countries. Whereas financial net wealth as a proportion of disposable income was generally trending upward in other countries, it fell in New Zealand. Financial net wealth has generally been trending downward in New Zealand, largely because of strongly rising debt (liabilities) following the deregulation of financial markets. Moreover, financial assets as a proportion of disposable income fell sharply following the stock market crash in 1987.

Real assets are an important component of household balance sheets. In most countries, movements in total net wealth are largely driven by real assets. Correlation coefficients between total net wealth and real assets vary between 0.41 for France and 0.99 in Japan (see table 2). Concordance statistics, which measure the proportion of time total net wealth and real assets moved in the same direction, range from 0.46 in France to 1.0 for Japan.[18]

Figure 12 graphically depicts the concordance statistics. Areas are shaded for years when real assets and net wealth moved in the same direction, i.e. both increased or both fell. Areas are blank when one series rose while the other fell.

Figure 12 shows that the degree of concordance is largest for Japan. Total net wealth and real assets in Japan moved in the same direction for every year that data are available. In Australia, concordance is also strong. Total net wealth and real assets co-moved in each year apart from 1994. In Canada, they moved in the same direction except for 1995 and 1998, while in New Zealand net wealth and real assets diverged during three years, in 1986, 1987 and 1997. Net wealth and real assets also tended to co-move in the remaining countries, apart from France. In France, the ratio of real assets to disposable income actually fell while total net wealth as a proportion of disposable income rose (see Figure 10).

Real assets, including housing and other tangible assets, are an important component of households’ total assets (see Figure 13). Most recent available data suggest that real assets account for about 30 percent of total household assets in the United States, for about 40 percent in Canada and the United Kingdom and around 50 percent in France, Italy and Japan. At around 60 percent, real assets in Australia, Germany and New Zealand make up the largest component of households’ total assets.

Apart from Japan, residential property or housing assets form the largest proportion of real assets (see table 3). Housing assets account for between 52 percent in Germany to 85 percent in New Zealand. At 19 percent, Japan is the exception to this picture. Kiernan (2001) estimates that in New Zealand housing assets accounted for about 85 percent in 1999.[19] The proportion of housing in the United Kingdom, at around 80 percent, is also large and suggests that the swings in the ratio of household total net wealth to disposable income, discussed earlier, were largely driven by the housing market.