The inversion of the ‘really big trade-off’: homeownership and pensions in long-run perspective

Abstract

The hypothesis of a trade-off between homeownership and welfare state provision, first proposed by Jim Kemeny around 1980, is a foundational claim in the political economy of housing. However, the evidence for this hypothesis is unclear at both macro and micro levels. This paper examines the link between welfare and homeownership at the macro level using new long-run data and a multilevel modelling approach. It shows that the negative crosssectional correlation between homeownership and public welfare provision observed in the earliest available data disappears and becomes neutral by the 1980s and possibly positive subsequently. Within-country trajectories vary, but are significantly positive in more countries than significantly negative, suggesting that in some contexts welfare and homeownership are complements rather than competitors. The paper posits a dual ratchet effect mechanism in both pension benefits and homeownership capable of producing this inversion, and further suggests that rising public indebtedness and the debt-stabilising effects of welfare states may account for the emergence of complementarity in the pension-homeownership relationship. The latter supports the hypothesis that some countries have avoided the trade-off by 'buying time' on credit markets. KEYWORDS Homeownership; welfare; pensions; trade-off; long run Housing has long been relatively neglected in the comparative welfare states literature and in political economy more generally. Nevertheless, the best-established hypothesis in this terrain is the notion of a long-run trade-off between homeownership and social policy generosity, especially in old-age pensions (Kemeny 1981). Castles (1998) termed this homeownership-pension relationship the 'really big trade-off'. While scholars took up this hypothesis only sporadically for two decades, recent literature has CONTACT Sebastian Kohl

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“…Institutional explanations of such ranking will likely also profit from direct connections to the literatures reviewed here as the financialization of pension systems complements that of housing markets (Dixon 2008;Schwartz 2012;van Gunten and Kohl 2020).…”

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“…Wind et al’s (2019) research shows that secondary property ownership (rental income) rates are higher in less generous welfare states, thereby bolstering the theory. However, Gunten and Kohl (2020) find that the “really big trade-off” was an artifact of a particular historical moment that did not allow for structural changes in housing and welfare regimes. Their analyses suggest that there is no longer a trade-off, and that homeownership and pensions may, in fact, increase in tandem.…”

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“…For instance, the consequences of a loosely regulated mortgage market-especially for economically disadvantaged families, minority households, and single mothers and thereby for broader patterns of wealth inequality-became particularly obvious in the Great Recession and its aftermath in the United States (Rugh and Massey 2010;Baker 2014). At the same time, access to financial markets and, in particular, long-term debt obligations such as mortgages may also be facilitated by more stable labor trajectories and protections, such as in northern European countries (Johnston, Fuller, and Regan 2020), suggesting that increased access to homeownership should not be simply thought of as a trade-off to a well-developed welfare state (Ansell 2014;van Gunten and Kohl 2020). Furthermore, in northern European countries, the proliferation of credit has been driven by the intensification of credit among those holding it, more so than the expansion of credit to more households (van Gunten and Navot 2018).…”