IDEAS home Printed from https://ideas.repec.org/a/eee/joecag/v17y2020ics2212828x20300268.html
   My bibliography  Save this article

Building on a pension: Second pillar wealth as a way to finance real estate?

Author

Listed:
  • Bütler, Monika
  • Stadelmann, Sabrina

Abstract

Home ownership is not only an important asset, but also provides an income stream in kind. If individuals use pension savings to purchase real estate, they face a trade-off between alleviating borrowing constraints when young and lower liquid retirement means when old. We study the decision to withdraw retirement assets for home purchase in advance by analyzing a recent reform. A change in down payment requirements made such early withdrawals less attractive, as borrowers are obliged to provide a larger amount of non-pension equity for a home purchase. Using individual-level data from a large Swiss occupational pension provider, we find that the share of individuals who withdrew in a given year dropped by one sixth. For the withdrawers, the average share of pension assets withdrawn decreased by 5.1 percentage points, mainly driven by individuals with lower levels of pension wealth and of older age. Nonetheless, our analysis also shows that while limiting second pillar withdrawals can aggravate the borrowing constraint to some degree, they are not the only constraining factor when purchasing a home.

Suggested Citation

  • Bütler, Monika & Stadelmann, Sabrina, 2020. "Building on a pension: Second pillar wealth as a way to finance real estate?," The Journal of the Economics of Ageing, Elsevier, vol. 17(C).
    • Handle: RePEc:eee:joecag:v:17:y:2020:i:c:s2212828x20300268
    DOI: 10.1016/j.jeoa.2020.100261
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S2212828X20300268
    Download Restriction: no
    File URL: https://libkey.io/10.1016/j.jeoa.2020.100261?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Maria Chiuri & Tullio Jappelli, 2010. "Do the elderly reduce housing equity? An international comparison," Journal of Population Economics, Springer;European Society for Population Economics, vol. 23(2), pages 643-663, March.
    2. Christian Hilber, 2007. "Why Are Homeownership Rates So Different Across Europe?," ERES eres2007_165, European Real Estate Society (ERES).
    3. Jesus Fernández-Villaverde & Dirk Krueger, 2007. "Consumption over the Life Cycle: Facts from Consumer Expenditure Survey Data," The Review of Economics and Statistics, MIT Press, vol. 89(3), pages 552-565, August.
    4. Matthew Chambers & Carlos Garriga & Don E. Schlagenhauf, 2009. "Accounting For Changes In The Homeownership Rate," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 50(3), pages 677-726, August.
    5. Yogo, Motohiro, 2016. "Portfolio choice in retirement: Health risk and the demand for annuities, housing, and risky assets," Journal of Monetary Economics, Elsevier, vol. 80(C), pages 17-34.
    6. Reto Foellmi & Isabel Z. Martínez, 2017. "Volatile Top Income Shares in Switzerland? Reassessing the Evolution between 1981 and 2010," The Review of Economics and Statistics, MIT Press, vol. 99(5), pages 793-809, December.
    7. Thomas Davidoff & Jeffrey R. Brown & Peter A. Diamond, 2005. "Annuities and Individual Welfare," American Economic Review, American Economic Association, vol. 95(5), pages 1573-1590, December.
    8. Mitchell, Olivia S. & Piggott, John, 2004. "Unlocking housing equity in Japan," Journal of the Japanese and International Economies, Elsevier, vol. 18(4), pages 466-505, December.
    9. Jonas D. M. Fisher & Martin Gervais, 2011. "Why Has Home Ownership Fallen Among The Young?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 52(3), pages 883-912, August.
    10. Fehr, Hans & Hofmann, Maurice, 2020. "Tenure choice, portfolio structure and long-term care – Optimal risk management in retirement," The Journal of the Economics of Ageing, Elsevier, vol. 17(C).
    11. King, Gary & Zeng, Langche, 2001. "Logistic Regression in Rare Events Data," Political Analysis, Cambridge University Press, vol. 9(2), pages 137-163, January.
    12. Painter, Gary & Lee, KwanOk, 2009. "Housing tenure transitions of older households: Life cycle, demographic, and familial factors," Regional Science and Urban Economics, Elsevier, vol. 39(6), pages 749-760, November.
    13. Todd Sinai & Nicholas S. Souleles, 2005. "Owner-Occupied Housing as a Hedge Against Rent Risk," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 120(2), pages 763-789.
    14. repec:arz:wpaper:eres2007-165 is not listed on IDEAS
    15. Viola Angelini & Agar Brugiavini & Guglielmo Weber, 2014. "The dynamics of homeownership among the 50+ in Europe," Journal of Population Economics, Springer;European Society for Population Economics, vol. 27(3), pages 797-823, July.
    16. Fang Yang, 2009. "Consumption over the Life Cycle: How Different is Housing?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 12(3), pages 423-443, July.
    17. Kurt Schmidheiny, 2017. "Emerging Lessons from Half a Century of Fiscal Federalism in Switzerland," Swiss Journal of Economics and Statistics, Springer;Swiss Society of Economics and Statistics, vol. 153(2), pages 73-101, April.
    18. Brown, Jeffrey R., 2001. "Private pensions, mortality risk, and the decision to annuitize," Journal of Public Economics, Elsevier, vol. 82(1), pages 29-62, October.
    19. Chiuri, Maria Concetta & Jappelli, Tullio, 2003. "Financial market imperfections and home ownership: A comparative study," European Economic Review, Elsevier, vol. 47(5), pages 857-875, October.
    20. Steven F. Venti & David A. Wise, 2004. "Aging and Housing Equity: Another Look," NBER Chapters, in: Perspectives on the Economics of Aging, pages 127-180, National Bureau of Economic Research, Inc.
    21. Menahem E. Yaari, 1965. "Uncertain Lifetime, Life Insurance, and the Theory of the Consumer," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 32(2), pages 137-150.
    22. Tracy M. Turner & Marc T. Smith, 2009. "Exits From Homeownership: The Effects Of Race, Ethnicity, And Income," Journal of Regional Science, Wiley Blackwell, vol. 49(1), pages 1-32, February.
    23. Artle, Roland & Varaiya, Pravin, 1978. "Life cycle consumption and homeownership," Journal of Economic Theory, Elsevier, vol. 18(1), pages 38-58, June.
    24. Dan Andrews & Aida Caldera Sánchez, 2011. "Drivers of Homeownership Rates in Selected OECD Countries," OECD Economics Department Working Papers 849, OECD Publishing.
    25. David A. Wise, 2004. "Perspectives on the Economics of Aging," NBER Books, National Bureau of Economic Research, Inc, number wise04-1.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Fehr, Hans & Hofmann, Maurice, 2020. "Tenure choice, portfolio structure and long-term care – Optimal risk management in retirement," The Journal of the Economics of Ageing, Elsevier, vol. 17(C).
    2. Agnese Romiti & Mariacristina Rossi, 2014. "Wealth decumulation, portfolio composition and financial literacy among European elderly," Carlo Alberto Notebooks 375, Collegio Carlo Alberto.
    3. Piazzesi, M. & Schneider, M., 2016. "Housing and Macroeconomics," Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 1547-1640, Elsevier.
    4. Yogo, Motohiro, 2016. "Portfolio choice in retirement: Health risk and the demand for annuities, housing, and risky assets," Journal of Monetary Economics, Elsevier, vol. 80(C), pages 17-34.
    5. Viola Angelini & Agar Brugiavini & Guglielmo Weber, 2014. "The dynamics of homeownership among the 50+ in Europe," Journal of Population Economics, Springer;European Society for Population Economics, vol. 27(3), pages 797-823, July.
    6. Eric French & Rory McGee & John Bailey Jones, 2022. "Savings after retirement," IFS Working Papers W22/53, Institute for Fiscal Studies.
    7. Irina Telyukova & Makoto Nakajima, 2010. "Home Equity Withdrawal in Retirement," 2010 Meeting Papers 636, Society for Economic Dynamics.
    8. Chunil Kim & Hyobi Choi & Yeol Choi, 2021. "Retirement Age and Housing Consumption: The Case of South Korea," Sustainability, MDPI, vol. 13(3), pages 1-21, January.
    9. Aydilek, Asiye, 2016. "The allocation of time and puzzling profiles of the elderly," Economic Modelling, Elsevier, vol. 53(C), pages 515-526.
    10. Mariacristina De Nardi & Eric French & John Bailey Jones, 2016. "Savings After Retirement: A Survey," Annual Review of Economics, Annual Reviews, vol. 8(1), pages 177-204, October.
    11. Makoto Nakajima & Irina A. Telyukova, 2020. "Home Equity In Retirement," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 61(2), pages 573-616, May.
    12. repec:ulb:ulbeco:2013/340821 is not listed on IDEAS
    13. Xu, Mengyi & Alonso-García, Jennifer & Sherris, Michael & Shao, Adam W., 2023. "Insuring longevity risk and long-term care: Bequest, housing and liquidity," Insurance: Mathematics and Economics, Elsevier, vol. 111(C), pages 121-141.
    14. James Poterba & Steven Venti & David Wise, 2011. "The Composition and Drawdown of Wealth in Retirement," Journal of Economic Perspectives, American Economic Association, vol. 25(4), pages 95-118, Fall.
    15. Francisco Gomes & Michael Haliassos & Tarun Ramadorai, 2021. "Household Finance," Journal of Economic Literature, American Economic Association, vol. 59(3), pages 919-1000, September.
    16. Amitabh Chandra & Courtney Coile & Corina Mommaerts, 2023. "What Can Economics Say about Alzheimer's Disease?," Journal of Economic Literature, American Economic Association, vol. 61(2), pages 428-470, June.
    17. Antoine Bommier & François Grand, 2014. "Too risk averse to purchase insurance?," Journal of Risk and Uncertainty, Springer, vol. 48(2), pages 135-166, April.
    18. Maria Chiuri & Tullio Jappelli, 2010. "Do the elderly reduce housing equity? An international comparison," Journal of Population Economics, Springer;European Society for Population Economics, vol. 23(2), pages 643-663, March.
    19. Davis, Morris A. & Van Nieuwerburgh, Stijn, 2015. "Housing, Finance, and the Macroeconomy," Handbook of Regional and Urban Economics, in: Gilles Duranton & J. V. Henderson & William C. Strange (ed.), Handbook of Regional and Urban Economics, edition 1, volume 5, chapter 0, pages 753-811, Elsevier.
    20. Fang, H., 2016. "Insurance Markets for the Elderly," Handbook of the Economics of Population Aging, in: Piggott, John & Woodland, Alan (ed.), Handbook of the Economics of Population Aging, edition 1, volume 1, chapter 0, pages 237-309, Elsevier.
    21. Baulkaran, Vishaal & Jain, Pawan, 2024. "Home equity and retirement funding: Challenges and opportunities," Global Finance Journal, Elsevier, vol. 61(C).

    More about this item

    Keywords

    Retirement; Annuity; Home ownership;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:joecag:v:17:y:2020:i:c:s2212828x20300268. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: https://www.journals.elsevier.com/the-journal-of-the-economics-of-ageing .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.