Homeownership as a Pension

Abstract

This chapter aims to evaluate how the equity embedded in the homes owned by European owner occupiers would, if systematically used for the purposes of contributing to their income in old age, perform as a pension. In other words, it starts from the theoretical premise that in old age European households would fully use all of the equity they had built up in their home during their working years, running those housing assets down to zero, leaving no bequests at the time of death and having nothing in reserve as precautionary saving. The first step is the estimation of the amount of housing income in kind and in cash that the average household in each member state could potentially enjoy. The second step involves taking these estimates and evaluating them against two criteria: adequacy and sustainability. From these two steps, this chapter arrives at a number of conclusions about the potential of housing as a pension. Here, one of the broad messages is that home ownership may facilitate distribution across the life cycle but it is not generally a vehicle for distribution across income classes. The general picture for Europe is that people with the highest incomes from the labour market also tend to build up the largest housing assets and other forms of wealth, as well as acquire the largest pension rights.