It Pays to Be a Landlord

Owning a home and renting it out is the best way to climb up the wealth pyramid especially in the U.S. A recent working paper by Pirmin Fessler and Martin Schürz at the Austrian Central Bank, Oesterreichischche National Bank (ONB),  broke down the U.S. wealth survey to compare wealth between the U.S. and countries in the Eurozone. The study which gave insights into the classification of households based on decisive functions of their wealth holdings found that social structures concerning wealth could be characterized by renters, homeowners, and capitalists.

According to this study, the reason capitalists were generally in the top percentile of the wealth pyramid was because of their ability to not only own their home but "additionally rent out further real estate and/or have self-employed business wealth." While renters mainly had wealth for precautionary reasons, the paper said that homeowners also used their wealth to live in "by means of owner occupation and therefore generate non-cash income from their wealth."

Looking at the U.S. housing market, in particular, the study found that while the share of renters was 35 percent, homeowners formed the biggest chunk at 50 percent. Despite the share of capitalists/homeowners who rented their properties being only 15 percent, the study revealed that renters were mostly found in the lower half of the wealth distribution, owners mostly in the upper-middle part and capitalists dominantly in the very upper part.

In both, the United States and the Euro area, the study found that only a few capitalists were found to be in the lower part of the wealth distribution. Conversely, only a few renters were found in the upper part of the wealth distribution.

Analyzing the wealth distribution among these four groups, the study found that the form of income played a major role in defining these social classes. It also revealed that capitalists in all the countries in the study had an overproportional share in income and wealth, while renters across all these countries had an under-proportional share of income and wealth. In fact, renters in the U.S. had the smallest income ratios at 0.47, while the capitalists and landlords had the highest at 2.5. When compared with Europe however, capitalists in the U.S. were beaten by their counterparts in Austria who had an income ratio of 4.7.

The study also found rather large differences in country patterns as far as wealth distribution was concerned among these three groups. "Wealth distances between renters and capitalists are largest in Austria, the United States, Germany and Luxembourg, but with regard to the income they are among the smallest in Austria, Germany, and Luxembourg whereas by far the largest in the United States," the study revealed.