Families dedicated a large part of the savings they accumulated during the pandemic to buying and renovating homes, according to INE data. It was expected that after the reopening of the activity, households would start consuming what they had not been able to during confinement and restrictions. Since most of that money was also kept in deposits and cash, it was presumed that they were very liquid resources and that they would be easily spent. However, the Roaring Twenties reissue did not occur. Families have continued to save at a record pace in a climate where uncertainty still lingers. Before, only in 2009 had something comparable been saved.
And what have the families done with that money? They did not dedicate it to consumption because the figures are still far from those prior to the pandemic. In 2021 they used it mainly for housing, either renovating the houses or buying them. To the point that with 71,000 million they doubled the average annual investment figure between 2010 and 2020. From 2004 to 2009, in the midst of the bubble, more was spent, ranging between 75,000 and 105,000 million a year. But between October and December of last year, investment figures reached the same quarterly levels as in those years. The difference is that this time it is done on a record amount of savings and not resorting to greater debt. As the data is in euros, we must take into account the effect that inflation may have had, which was moderate in those years anyway.
Although in 2020 the same investment figures were already given as in 2019, the embalming of operations due to confinement may have contributed to this rebound. In 2021, 565,000 home sales were registered, the highest figure in 14 years. The low return on deposits and financial investments has made families see housing as a better refuge for their money in a context of very low mortgage rates. The time of confinement has also been decisive, which made many households consider improving the conditions of their homes.
What photograph remains of the situation of households after the pandemic with the data closed for 2021? According to the INE, this saving has occurred without families having yet overcome the pandemic. Despite the State’s efforts to contain the economic impact of the virus, in 2021 households had around 22,000 million euros less disposable income than before the covid, almost 3% less. The salary mass they received practically recovered: it was barely 2,000 million below the levels prior to the coronavirus, 0.35%. To a large extent, this happened because of how well the labor market held up, sustained by ERTEs that were financed with public debt thanks to ECB purchases. Faced with such an exceptional situation in which it was decided to close the economy to save lives, it was necessary to resort to State indebtedness in order to finance it as never before in history. The increase in public employment to respond to the enormous tensions that the virus imposed on health and education also contributed to partially recover the wage bill. This grew by about 13,000 million.
However, there is family income that did not resist so well and explains why disposable income has not been restored: the income of the self-employed was lower by about 13,000 million, 6%. Income obtained from dividends, interest and rentals also sank by half: some 25,000 million less in 2021 compared to 2019. Above all, dividend payments fell a lot, which are usually pocketed in a greater proportion by high incomes. And despite the fact that families had a lower income, they paid about 7,000 million more than in 2019 in taxes such as personal income tax and wealth, about 7% more. This is an increase in fiscal pressure that does not correspond to the approved tax increases. The explanations of the economists vary from that the GDP is poorly measured to the effect of inflation or the outcrop of payments due to the greater use of cards.
35,000 million more in benefits
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Thus, disposable income fell despite the fact that wages had almost been restored and that families received some 35,000 million more for public benefits, an increase of 6% due to the ERTE, aid to the self-employed, the increase in spending on pensions and the minimum vital income. Public aid was not enough to offset the other factors mentioned above. Although there have probably been temporary redistributive effects, since benefits have increased and the loss has been concentrated more in capital income than in wages.
The wage bill almost recovered despite the fact that hours worked fell by around 3%. This implies that the hourly wage has increased compared to before the pandemic. Although there are explanations for this phenomenon such as the increase in sick leave due to the covid or the reduction in hours subsidized with the ERTE. Another surprising fact is that the contribution collection is about 11,000 million above 2019, 6% more despite the fact that the remuneration of employees is the same.
With that lower income, what did households do? Well, they significantly reduced their consumption compared to before the virus: 44,000 million less, 6%, in an economy in which, until the vaccines were extended, it had restrictions that weighed down purchases. The combination of forced savings with public income support caused savings to reach a record 15% of disposable income in 2020. The idea was that as there was a reopening there would be a boom in consumption because households would pull those funds. However, in 2021 savings continued at a rate of 11.4%. The amount saved, some 85,000 million, was still a third higher than in 2019. María Jesús Fernández, an analyst at Funcas, puts the excess savings compared to the historical averages at around 60,000 million in 2020 and 35,000 million in 2021. investing in housing on a very high amount of savings, has returned to levels not seen since the bubble, says María Jesús Fernández.
In short, families had not yet recovered their disposable income last year, they consumed considerably less than before the pandemic, they saved much more and spent amounts on housing not seen since 2009.
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