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Housing in the Household Portfolio and Implications for Retirement Saving: Some Initial Finding from SOFIE

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Author Info

  • Grant Scobie
  • Trinh Le
  • John Gibson

    ()
    (New Zealand Treasury)

Abstract

Housing is an important sector of the economy. It has widespread implications for investment, banking, saving and employment. Home ownership has been linked to building social capital and a sense of community. Furthermore housing equity is a significant element of retirement accumulation for many New Zealanders. The Treasury maintains a programme of work related to housing, saving, wealth accumulation and retirement. The results of this contribute to Treasury's role in providing advice to the Minister and at the same time informing a wider group of external stakeholders. This paper uses unit record data from a new panel survey (SOFIE) to study housing wealth in household portfolios. It then estimates the rates of saving that would be needed to smooth consumption between pre- and post-retirement. Finally it explores the effect of some home equity withdrawal on the required saving rates. The main findings of this study are: • 60% of households are recorded as owning a home; • Almost half of home-owning households have no mortgage debt; • One in six households own residential investment property; • One in twelve households own a rental property; • Patterns of property ownership in New Zealand are similar to those in selected comparator countries; • Housing represents a major share of household wealth, and this share has risen in line with the increase in house prices; • The composition of household portfolios is comparable to other selected countries except for the USA ; • Empirical results indicate that even if households planned to draw down half of housing equity to support retirement income, the impact on the saving rate needed to smooth consumption would be modest.

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File URL: http://www.treasury.govt.nz/publications/research-policy/wp/2007/07-04/twp07-04.pdf
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Bibliographic Info

Paper provided by New Zealand Treasury in its series Treasury Working Paper Series with number 07/04.

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Length: 30
Date of creation: Mar 2007
Date of revision:
Handle: RePEc:nzt:nztwps:07/04

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Related research

Keywords: Consumption smoothing; home equity; household portfolio; household wealth; housing; life cycle; retirement; savings;

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References

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  1. James Banks & Richard Blundell & James P. Smith, 2002. "Wealth Portfolios in the UK and the US," NBER Working Papers 9128, National Bureau of Economic Research, Inc.
  2. John Gibson & Grant Scobie, 2001. "A cohort analysis of household income, consumption and saving," New Zealand Economic Papers, Taylor & Francis Journals, vol. 35(2), pages 196-216.
  3. Trinh Le & Grant Scobie & John Gibson, 2009. "Are Kiwis saving enough for retirement? Evidence from SOFIE," New Zealand Economic Papers, Taylor & Francis Journals, vol. 43(1), pages 3-19.
  4. Katherine Henderson & Grant M. Scobie, 2009. "Household Debt in New Zealand," Treasury Working Paper Series 09/03, New Zealand Treasury.
  5. James F. Moore & Olivia S. Mitchell, 1997. "Projected Retirement Wealth and Savings Adequacy in the Health and Retirement Study," NBER Working Papers 6240, National Bureau of Economic Research, Inc.
  6. Mark van Zijll de Jong & Grant M. Scobie, 2006. "Housing: An Analysis of Ownership and Investment Based on the Household Savings Survey," Treasury Working Paper Series 06/07, New Zealand Treasury.
  7. Hurst, Erik & Stafford, Frank, 2004. "Home Is Where the Equity Is: Mortgage Refinancing and Household Consumption," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(6), pages 985-1014, December.
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Citations

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Cited by:
  1. David Law & Lisa Meehan, 2013. "Housing Affordability in New Zealand: Evidence from Household Surveys," Treasury Working Paper Series 13/14, New Zealand Treasury.
  2. David Baqaee & Richard Watt, 2010. "Sharing a risky cake," Reserve Bank of New Zealand Discussion Paper Series DP2010/06, Reserve Bank of New Zealand.
  3. Janice Burns & Maire Dwyer, 2007. "Households'attitudes to savings, investment and wealth," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 70, December.
  4. Richard Fabling & Lynda Sanderson, 2010. "Exporting and performance: Market entry, expansion and destination characteristics," Reserve Bank of New Zealand Discussion Paper Series DP2010/07, Reserve Bank of New Zealand.
  5. Mark Smith, 2010. "Evaluating household expenditures and their relationship with house prices at the microeconomic level," Reserve Bank of New Zealand Discussion Paper Series DP2010/01, Reserve Bank of New Zealand.
  6. David Baqaee, 2010. "Intertemporal Choice: A Nash Bargaining Approach," Reserve Bank of New Zealand Discussion Paper Series DP2010/08, Reserve Bank of New Zealand.
  7. Trinh Le, 2007. "Does New Zealand have a household saving crisis?," Macroeconomics Working Papers 23081, East Asian Bureau of Economic Research.

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