Installation view of Arario Gallery’s booth at Art Basel in Hong Kong, 2017. Courtesy of Art Basel.
Widening wealth inequality has been and likely will be blamed for a number of pernicious phenomena, such as rising populism, the election of a few unsavory characters, and decreased social mobility. Inequality can also have its potential upsides. It can encourage risk-taking, boost spending on luxury items, and spur innovation.
What does widening inequality mean for the art market? That’s a central focus of The Art Market | 2017, a report by longtime arts economist and founder of Arts Economics Clare McAndrew, released Wednesday at Art Basel in Hong Kong. McAndrew highlighted several risks to the art market that could be exacerbated by the increasing dominance of the ultra-wealthy and thinning ranks of more modest collectors who help support the emerging end of the market.
Her report, produced in partnership with Art Basel and UBS, found that overall sales for the global art market fell 11% in 2016, to $56.6 billion. She cites several data points suggesting that the scales are tilting ever more in favor of established galleries and artists. Dealers with turnover under $500,000 and from $500,000 to $1 million saw their sales decline by 7% and 5% respectively in 2016, while those turning over between $1 million and $10 million in 2016 saw sales rise by 7%. And the $10 million and above segment grew their sales by 2%, according to the report.
“Since 2009, we’ve really seen the top end pull away and get more disconnected from the everyday businesses of the market,” says McAndrew, who in previous years created a similar report for TEFAF. In this year’s report, she links that trend to growing wealth inequality.
“The concentration of values and spending in a narrow segment of the art market puts the market at risk of becoming polarized and creates prices out of tune with fundamental values and the scope” of the broader population of art market participants, she writes. But it is precisely those consumers buying at lower price points “who are critical in giving depth to the market and supporting the entire infrastructure on which it is based.”
“We’ve really seen the top end pull away.”
Growing ranks of high-net-worth individuals (defined in the report as having at least $1 million in investable assets, excluding real estate and business interests) and ultra-high-net-worth individuals, with investable assets of $50 million or more, tend to drive consumption of luxury goods, art included. In a chapter on global wealth and the art market, which drew from a survey of high-net-worth individuals conducted by UBS, McAndrew writes that the number of millionaires globally “has increased dramatically since 2000 (rising 155% to 2016), and among them, those with wealth over $50 million have risen the fastest (by over 215%).”
That coincides with, for example, recent data from the U.S. showing that the top 1% have seen their incomes rise to a pre-tax average of $1.3 million in 2014, nearly doubling since 1980, while incomes for the poorest 50% of people have stayed more or less flat, at $16,200 in 2014.
Many of these newly minted millionaires and billionaires, unfamiliar with specific artists, art history, or the art market, may make safer bets “by only buying well-recognized works or those by famous artists,” McAndrew writes. That could potentially create an art market that risks “becoming polarized and lacking depth.”
Those buying behaviors and preferences pose risks for the broader art market on several levels. A thin market with just a handful of ultra-rich players can become dangerously reliant on their whims and their resources. For example, major auction houses rely on collectors at the very high end of the market to send in high-quality consignments. In the face of an uncertain last year marked by political turmoil, many major collectors stayed on the sidelines, preferring to either hold onto their choice works, or sell them privately. That dearth of highly appealing consignments helped sink overall global auction results, which fell by 26% to $22.1 billion in 2016.
Dealers with turnover above $50 million saw their sales advance by 19%.
The lack of high-level participation was particularly clear at the ultra-high end of the auction market, or sales of $10 million or more, which fell the most of any segment, plummeting by 53% in 2016. At the same time, the sharp sales increase for dealers at the very top end suggests a flight to the private market for these high-level works, as dealers with turnover above $50 million saw their sales advance by 19%.
Over a longer time horizon, auction sales at the high end have grown by 73% in the past 10 years, compared with 11% for the low end (prices up to $50,000) and 21% for the middle market (between $50,000 and $1 million).
Furthermore, if major collectors focus only on the giants of the art world, emerging artists face an uphill challenge gaining recognition and making sales. There are already a handful of “superstar” artists whose names have consistently topped annual auction sales rankings year in and year out for the past decade, such as Andy Warhol, Bruce Nauman, and Pablo Picasso. But the middle segments of the auction market, from between $5,000 to $250,000, still haven’t recovered from the market’s 2009 contraction following the financial crisis, and have continued to decline even as other segments have stabilized or improved.
The middle segments of the auction market still haven’t recovered from the market’s 2009 contraction.
The penchant for more blue-chip names can also stymie mid-range galleries, which typically lose their more established artists to bigger and often more global galleries as their profiles rise. Dealers themselves acknowledge this is a problem, according to an in-depth survey of over 1,100 McAndrew conducted in preparing the report. “Smaller galleries have come under increasing pressure, as sales and buying interest has become more centered on high-end galleries,” McAndrew writes.
Even high-end dealers were concerned about the pressures on their smaller competitors, since they acknowledged it was these younger galleries who did the work of finding and developing artists in the early stage of their careers. In the U.S., where funding for the arts is under threat, smaller arts organizations are particularly vulnerable.
But, McAndrew notes, some potential support could come from the emerging class of collectors, particularly from Asia, where the new millionaires tend to be younger. In her observation, younger collectors often prefer buying from artists roughly in their age group, a preference that could potentially help support the low and middle ranges of the gallery sector in the future. In addition, a growing share of art transactions are being conducted online, mostly at lower price points (75% of online sales were for $50,000 or less, the report found). That could indicate a “barbell” shape in the industry, similar to that in other consumer sectors such as housing and retail, with sales increasingly concentrated at the low end and the very high end of the market.
“Smaller galleries have come under increasing pressure.”
“New or young collectors often buy from in and around their generation so that provides some optimism for Contemporary going forward,” says McAndrew. But, she says, the outlook going forward is too difficult to game.
“The art market is quite unpredictable, too,” she says. “Fashion or changes in taste drive growth as much as underlying economic fundamentals, but these are much harder to predict.”
One thing that is almost certain to be an issue in the art market of the future: Artists will need a lot more support. Most major art capitals such as New York or London are plagued by painfully high rents, and artists on average earn very little through the sale of their work. McAndrew says that in one of her discussions with a major New York gallerist, he cited the living conditions and housing for artists as his main concern.
“That’s the crux of the issue, really, rather than the small galleries” and whether they survive or not, McAndrew said. “The artists will never even get to a gallery” if housing in cities with robust art markets is priced out of their reach.
Early in her career as an arts economist, she says, she researched different programs that could help support artists’ careers. Many policies, such as artist resale royalties or a tax exemption for artists, didn’t work as well as she’d hoped. But one of the best ways to support artists’ incomes, she says, “is to provide a really healthy marketplace.”