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Stochastic modelling of the home equity access scheme

Author

Listed:
  • Tyson Lamarra
  • Aaron Bruhn

    (Australian National University, Canberra, ACT, Australia)

  • Michael Miller

    (Capital Advisory, Kingston, ACT, Australia)

Abstract

The housing wealth of elderly homeowners is emerging as a key asset to support Australians in retirement. The Australian government's Home Equity Access Scheme allows elderly Australians to access the equity in their home and utilise this illiquid wealth. Through stochastic modelling of the scheme, this paper compares two strategies of drawing down housing wealth and provides a framework for comparing strategies that balances income, flexibility and longevity protection. The first strategy supplements other sources of retirement income, whereas the second strategy is similar to a contingent deferred annuity, with non-housing assets drawn down first. Although results vary by cohort and objective, the role of the scheme as a vehicle to protect against poverty in old age is emphasised. This reinforces the potential of home ownership as a financial asset in retirement, in addition to benefits conferred through housing ownership over the entire life cycle. JEL Classification: G22,G51

Suggested Citation

  • Tyson Lamarra & Aaron Bruhn & Michael Miller, 2023. "Stochastic modelling of the home equity access scheme," Australian Journal of Management, Australian School of Business, vol. 48(3), pages 652-677, August.
    • Handle: RePEc:sae:ausman:v:48:y:2023:i:3:p:652-677
    DOI: 10.1177/03128962221120954
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Home equity; retirement income; reverse mortgage; superannuation;
    All these keywords.

    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth

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