1. Homeownership, Social Insurance, and Old-Age Security in the United States and Europe
Stipica Mudrazija and Barbara A. Butrica
19th Annual Joint Meeting of the Retirement Research Consortium
August 3-4, 2017
Washington, DC

2. Motivation
Relatively few Americans have substantial savings outside of their employer- sponsored retirement plans, yet most own their homes.
Homeownership has always been recognized as a potential source of retirement security:
Rent-free place to live in older age (after a mortgage has been paid off)
Resource to pay for unplanned events or support general consumption
Many governments are increasingly promoting homeownership as an effective way of building assets, a de facto self-insurance mechanism for old-age security, and a (partial) substitute for various social transfers.

3. Research Aims
Compare recent trends in homeownership rates among older adults in the United States and Europe and provide a comparison of the key characteristics of housing-related policies across countries
Examine housing equity trends among older homeowners in the United States and Europe
Provide an overview of equity release options and estimate how much older homeowners could increase their household incomes by fully monetizing their housing equity
Critically discuss prospects for and limitations of home equity release and asset based welfare policies

4. Recent Trends in Homeownership and Housing Policies

6. Key Housing Policy Characteristics
Three key areas of government intervention into housing market:
Mortgage access, that is, regulations affecting credit markets and access to mortgage loans (as reflected in typical and maximum loan-to-value ratio, typical mortgage loan maturity, or prevalent interest rate type)
Direct government support for homebuyers, that is, tax treatment of homebuyers (transactions costs, property tax, and property tax relief)
Government support for non-homeowners (rent control, tenant (legal) protections, subsidized rent accommodation, and social housing)

7. Housing policy support rankings, by type of policy support
Mortgage access
Direct government support for homebuyers
Government support for non-homeowners
Denmark
3.0
2.7
Austria
Netherlands
France
2.3
United States
Sweden
Belgium
2.6
2.2
Germany
2.0
2.4
1.7
1.8
Spain
1.9
1.3
Italy
1.5
1.0

8. Recent Trends in Home Equity and Housing Debt

13. Housing Equity Release Options and Potential Financial Impact on Older Adults

14. Housing Equity Release Options
Traditional options for extracting liquidity from a home:
Downsizing
Mortgage refinancing or a second mortgage
Selling property and leasing it back
Dedicated financial products to facilitate equity release:
Reverse/lifetime mortgages
Home reversions

17. Prospects and Limitations of Home Equity Release and Asset Based Welfare Policies

18. Limitations Objective limitations:
High costs of withdrawing housing equity
Uncertainty about remaining years of life and financial resources needed
Adverse impact on eligibility for social benefits
Concentration of housing wealth among (upper) middle- and higher- income individuals
Subjective limitations:
Aversion toward (additional) debt in old age
Different (often emotional) attitude toward housing vs other types of wealth
Bequest motive
Lack of trust in financial institutions

19. Prospects
Using home equity to improve retirement security remains a potentially attractive option for a substantial number of older adults.
Assuming that 75 percent of home value is cashed-out, the U.S. households ages 65 and older could tap into more than $3 trillion of net housing wealth.
Differences in housing wealth and income distribution are sufficiently large that accounting for homeownership reduces income inequality and poverty rates.
Future cohorts of older homeowners may be more receptive to using their housing wealth to supplement their retirement incomes.
However, many younger Americans and Europeans may find it harder to build home equity than their parents’ generation.