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Households’ heterogeneous welfare effects of using home equity for life cycle consumption

Author

Listed:
  • Been, Jim
  • van Ewijk, Casper
  • Knoef, Marike
  • Mehlkopf, Roel
  • Muns, Sander

Abstract

Using a life-cycle model and a representative sample of households, we analyze the extent to which using home equity leads to (heterogeneity in) welfare gains over the life cycle. The most policy-feasible option to borrow against 50% of home equity over the life cycle leads to median (average) welfare gains of 7% (11%). However, we find substantial heterogeneity with half of the households facing a welfare gain between 3% and 13%. Much of this heterogeneity is explained by heterogeneity in households’ income and (housing) wealth and less so by heterogeneity in their demographics or preferences for consumption smoothing and time.

Suggested Citation

  • Been, Jim & van Ewijk, Casper & Knoef, Marike & Mehlkopf, Roel & Muns, Sander, 2024. "Households’ heterogeneous welfare effects of using home equity for life cycle consumption," The Journal of the Economics of Ageing, Elsevier, vol. 27(C).
    • Handle: RePEc:eee:joecag:v:27:y:2024:i:c:s2212828x23000592
    DOI: 10.1016/j.jeoa.2023.100499
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    More about this item

    Keywords

    Life cycle model; Welfare effects; Housing wealth; Heterogeneity;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D15 - Microeconomics - - Household Behavior - - - Intertemporal Household Choice; Life Cycle Models and Saving
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions

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