Housing Wealth in Retirement Strategies: Towards Understanding and New Hypotheses

Abstract

What is the current role of housing wealth in household retirement strategies across the European Union member states? And could this role be extended? This question is often raised by researchers and policymakers, since governments search for ways to cut pensions expenditure in response to ageing populations and the global financial crisis. Housing wealth could potentially be part of a solution as the retired are often rich in terms of housing wealth. The existing theory shows that owner-occupation can be regarded as a form of pension: once the mortgage has been repaid, housing expenses are substantially lower and also housing wealth can be cashed in either by selling or using equity release schemes. However, converting housing assets into cash appears a much less common strategy than expected. This thesis contributes to the existing knowledge by relating household strategies to broader national contexts. The countries included in the study are Belgium, Finland, Germany, Hungary, Portugal, Slovenia, Sweden and United Kingdom, while the Netherlands is the subject of particular attention. The study suggests that owner-occupation will become more relevant in the near future when pension systems become less generous. At the same time it shows that owner-occupation is not the clear-cut solution that governments might have hoped for. Generally, European households appear averse against cashing in housing wealth: they distrust complex financial products and their providers. Moreover, in some countries it would seriously undermine family solidarity; and households who are most likely to need extra pension income are least likely to be owner-occupiers. Additionally, an ageing society has a negative effect on the affordability of a pension system, yet at the same time it has an impact on housing markets. Shrinking populations typically coincide with decreasing house prices and hence reduce the options of cashing in housing wealth.

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