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International perspectives on homeownership and home equity extraction by senior households

Donald Haurin (Department of Economics, Ohio State University, Columbus, Ohio, USA)
Stephanie Moulton (John Glenn College of Public Affairs, Ohio State University, Columbus, Ohio, USA)

Journal of European Real Estate Research

ISSN: 1753-9269

Article publication date: 6 November 2017

691

Abstract

Purpose

This paper links the literatures on the life-cycle hypothesis, homeownership, home equity and pensions. Empirically, the focus is on the EU and USA. The paper aims to explore the extent that seniors extract their home equity and discuss the financial instruments available for equity extraction.

Design/methodology/approach

The study uses data from the EU and USA to determine homeownership rates, house values and mortgage debt. With these values, the amount of seniors’ home equity is measured for each country. The usage of home equity extraction methods is reported and factors limiting their use are identified.

Findings

Seniors’ home equity is a substantial share of their total wealth. Estimates for 2013 are that their home equity equals about €5tn in the USA and over €8tn in large EU countries. The authors find that only a small share of seniors extracts their home equity. While there are supply side constraints in many countries, the evidence suggests that the cause of low extraction rates is the lack of demand. Various reasons for the lack of demand are discussed.

Practical implications

The increasing share of seniors in most countries’ population suggests that there will be increasing pressure on public pension systems. One among many options to address this issue is to impose a wealth test for eligibility, where wealth includes home equity. This study suggests that although home equity is substantial for many seniors, they are reluctant to access the funds.

Originality/value

The paper highlights the importance of home equity in the EU and USA and the factors that affect the primary methods of extraction.

Keywords

Citation

Haurin, D. and Moulton, S. (2017), "International perspectives on homeownership and home equity extraction by senior households", Journal of European Real Estate Research, Vol. 10 No. 3, pp. 245-276. https://doi.org/10.1108/JERER-06-2017-0020

Publisher

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Emerald Publishing Limited

Copyright © 2017, Emerald Publishing Limited

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