Should we include property when we talk about personal wealth?

The BBC reports today that the personal wealth of UK households has more than doubled between 1996 and 2006, to £6.336 trillion. That's a very big number, but included within that figure is the value of property (after mortgage debt has been taken off) of £2.7 trillion. In fact, over half of the rise in personal wealth during that ten year period was down to house price inflation.

I think that most of us accept that when we talk about property wealth we have to ignore mortgage debt. That is why so many of these 'we will make you a property millionaire' type services annoy me slightly because what they really mean is 'we will show you how to become laden with so much mortgage debt that you own one million pounds worth of property, but actually very little if you ever had to repay the mortgages'.

It is positive to see that whilst property prices have risen, on average, by around 216% during that time, mortgage debt has 'only' risen by 163%. This means that the gap between property prices and mortgage debt has been growing - good news when we are being regularly bombarded with dire warnings about our collective levels of personal debt.

But is there any reason to get particularly excited about this increase in national personal wealth when a large part of it is locked away within property wealth? Owning an expensive property might give you something to talk about at a dinner party but it isn't a particularly liquid asset. Even if you did decide to sell it then you would need to buy somewhere else to live, or use the sale proceeds to pay the rent on another property.

There was a warning last year from The Institute for Public Policy Research (IPPR) who said that one in five retired people living in poverty in the UK own a property worth in excess of £100,000. This is what we refer to as being 'asset rich but cash poor'. Whilst at face value the simple solution would be to sell the property and buy a cheaper property, freeing up some of the value to subsidise income in retirement, this can lead to a serious reduction in means tested benefits.

Real personal wealth is about much more than the value of your house. It is about having a diversified set of assets ranging from the liquid (including cash) to the not-so-liquid (including property and pension funds).