Channels from Housing Wealth to Consumption

Abstract

This paper uses micro-data from two national panel surveys to analyse the flow of wealth from residential property onto households' balance sheets, where it is available for discretionary spending. The examples are Australia and the UK-two of the world's most entrenched nations of owner occupation, both with relatively complete mortgage markets. We focus on the early 2000s, which set the scene for an unprecedented wave of housing equity withdrawal. We consider equity released through sales and through additional borrowing. The findings show that equity extraction overall is not only (or even) a function of higher incomes, greater wealth and older age. Rather, it occurs across the life course, and is linked to pressing spending needs. We draw attention in particular to the growing social and economic significance of in situ equity borrowinga practice whose financial buffering effects may form a short-lived prelude, rather than a sustainable alternative, to trading on or selling up

Pensions at a Glance 2013

“…An outright home sale releases up to 100% of equity. Several recent studies find that younger cohorts, in particular, are increasingly willing to use equity release schemes in, for example, the United Kingdom (Smith, 2004), Australia (Ong et al, 2013a(Ong et al, , 2013b, and New Zealand (Davey, 2007). However, very few comparative studies exist on the state of the ERS market, which makes it difficult to assess its potential impact on retirement-income adequacy.…”

Housing Equity Withdrawal: Perceptions of Obstacles among Older Australian Home Owners and associated Service Providers

“…In many countries, wealth accumulated in the primary home dominates the elderly's asset portfolios (Chiuri and Jappelli, 2010) helped by sustained house price increases through the mid-1990s and early 2000s. These price increases and the prior deregulation of mortgage markets has prompted the introduction of innovative equity release products that allow home owners to convert housing equity into cash (Ong et al, 2013a(Ong et al, , 2013c. This has resulted in a policy milieu in a number of countries where home owners are increasingly expected to draw on personal assets, including the primary home, to meet their welfare needs in old age (Doling and Ronald, 2010).…”

Britain's new housing precariat: housing wealth pathways out of homeownership

“…Respondents underreport the take-out of an additional mortgage (Benito, 2009). Therefore, Ong et al (2013) suggest to measure in situ equity withdrawal as an increase of total mortgage debt from 2001 onwards. Due to missing and modified variables in earlier waves, this indicator could not be used here and it was decided to measure it rather conservatively with the mgxtra variable.…”

“…Research on equity withdrawal (Benito, 2009;Hurst & Stafford, 2004;Parkinson, Searle, Smith, Stoakes, & Wood, 2009;Smith & Searle, 2008; underscores how mortgages became a much more flexible financial vehicle in developed homeownership societies. Moving up and down the property ladder has become much more common and questions an idealised linear housing career from mortgaging into outright ownership (Ong, Parkinson, Searle, Smith, & Wood, 2013).…”