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UNITED STATES

The ‘American dream’ is actually Swedish: study

While US voters shunned the Democratic Party's traditionally redistributive policies in Tuesday's mid-term elections, most Americans actually prefer a wealth distribution model similar to Sweden's, writes the AFP's Andrew Beatty.

Published: 3 November 2010 18:00 CET
The 'American dream' is actually Swedish: study

Forget the socialist-bashing rhetoric and reverence for the filthy rich, when it comes to wealth distribution, Americans — even Republicans — would really rather live somewhere like Sweden.

According to a soon-to-be published study by researchers at Harvard and Duke universities, Americans believe US society is much more equal than it really is, and want it to be even fairer.

Business school professors Michael Norton and Dan Ariely asked 5,522 Americans about US wealth distribution and how it should look if things could be changed.

“Respondents vastly underestimated the actual level of wealth inequality in the United States, believing that the wealthiest quintile (20 percent) held about 59 percent of the wealth when the actual number is closer to 84 percent.”

Studies show current US wealth inequality is near record highs, with the top one percent of Americans estimated to hold around 50 percent of the nation’s wealth.

According to Norton and Ariely this tops “even the levels seen just before the Great Depression in the 1920s.”

But when asked how they would like the United States to look, respondents picked “wealth distributions that were far more equitable than even their erroneously low estimates of the actual distribution.”

In a blind test, about 92 percent of respondents said they preferred a model closer to Sweden’s wealth distribution to that seen in the United States.

The study’s authors also reported a “surprising level of consensus” among different groups, with 92 percent of Republican voters backing the Swedish model versus 93.5 percent of Democratic voters, with the richest and poorest also voting along similar lines.

“All demographic groups — even those not usually associated with wealth redistribution such as Republicans and the wealthy — desired a more equal distribution of wealth than the status quo.”

On average the top 20 percent of earners were seen as holding just 32 percent of wealth, less than the 84 percent in reality.

But anyone hoping this augurs well for a revolution will be disappointed.

Even if Americans become more aware of the wealth gap that exists, Norton and Ariely suggest they may misplaced faith in the “American Dream” to correct it.

“Just as people have erroneous beliefs about the actual level of wealth inequality, they may also hold overly optimistic beliefs about opportunities for social mobility in the United States — beliefs which in turn may drive support for unequal distributions of wealth.”

Disagreements about the causes of inequality may also drown out the consensus.

The authors also suggest there is a gap between what people would like to see and the policies they are willing to support to get there.

The study is to be published in the journal “Perspectives on Psychological Science”.

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PROPERTY

Why buying property in Austria remains unaffordable for most

Buying a home in Austria is a dream for many international residents, but it remains out of reach for the average earner.

Published: 7 May 2024 12:30 CEST
Why buying property in Austria remains unaffordable for most

Many people living in Austria dream of one day owning a home, but despite recent drops in property prices and interest rates, this dream is still out of reach for many average earners. 

In Austria, it is recommended to not spend more than 40 percent of a monthly income on debt repayment.

But new analysis by tariff comparison portal durchblicker.at reveals that even a double-income household would need to spend around 60 percent of their income to afford a 90m² new-build apartment in Vienna.

While the government has created initiatives to improve the affordability, with attractive housing packages, fee reductions and eliminations of certain fees, such as the “Grundbucheintragsgebühr” (land register entry fee) and “Pfandrechtseintragungsgebühr” (mortgage registration fee) for properties up to a certain value, their impact has been limited.

Furthermore, the governments initiatives often overlook the specific needs of lower-income households and may benefit those who are already financially stable, leaving the average earner still struggling to afford a home, according to Der Standard.

READ ALSO: ‘Haushaltsversicherung’ – How does Austria’s home insurance work?

High prices, rates and strict lending criteria

One of the biggest barriers to owning a home in Austria is simply the sky-high property prices. Over the years, property prices have increased, making it more difficult for people with an average income to afford a place of their own. Even with recent minor dips in prices, they still remain high.

Another factor making owning a home challenging is the increase in interest rates in recent years. As a result, both existing variable-rate loans and newly obtained fixed-rate loans have become more expensive. Analysts expect the European Central Bank to cut interest rates by around 0.5 percent in the near future, but according to durchblicker’s calculations, this would initially only create a little relief for loan takers, where instead of around 60 percent, 55 percent of monthly household net income would be needed for debt repayment.

Another issue preventing many from realising their dream to buy a home is the difficulty in obtaining a mortgage. Since July 2022, stricter rules have applied in Austria for the granting of property loans. Loan applicants must have a deposit worth at least 20 percent of the value of their property to be granted a loan, according to the financial online platform Finanz.at. This means that even applicants with higher incomes may struggle to get their dream financed. 

Furthermore, many loan takers with variable-rate loans, especially those recently obtained, are facing significant challenges. The variable interest rates have increased significantly since the initiation of these loans, resulting in higher monthly repayments, reported Der Standard.

Few people can afford their own home in Austria, especially in Vienna. Photo by Christian Lendl on Unsplash

Experts suggests fixed rate loans and cooperative housing models

Andreas Ederer, Head of Banking at durchblicker.at, recommends loan takers with variable-rate loans to change to fixed-rate loans. He suggests that fixed-rate loans have become more attractive as they are currently cheaper than variable-rate loans, reported Kurier. 

Unlike fixed-rate loans, which have a steady interest rate throughout the loan term, variable-rate loans can change over time in response to shifts in market conditions or the economy.

Experts also suggest alternative models for increasing affordability. One idea is to create more opportunities for cooperative ownership with mandatory purchase options. This could offer a more affordable option where costs such as maintenance and taxes are shared. According to Der Standard, cooperatives also often have access to loans with better terms.

READ NEXT: How can I move into affordable cooperative housing in Vienna?

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