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Mortgage Equity Withdrawal in Australia and Britain: Towards a Wealth-fare State?

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  • Sharon Parkinson
  • Beverley Searle
  • Susan Smith
  • Alice Stoakes
  • Gavin Wood

Abstract

Across the decade to 2007, a combination of house price appreciation and relaxed credit constraints gave a boost to consumption through the mechanism of mortgage equity withdrawal (MEW). Arguably, this kept developed economies buoyant, even through periods of recession. This paper uses panel data on British and Australian homeowners to show that, notwithstanding its macro-economic effects, such borrowing has far-reaching implications for the micro-economy of households. The data indicate that, for the period 2001-2005, equity borrowing was a common tactic. The sums involved were not trivial, were not limited to older cohorts, or the province simply of the rich. In fact, the events and circumstances associated with equity borrowing at the zenith of the last housing cycle were consistent with an insurance, as well as a general consumption, role for MEW. As house prices fall and credit constraints are re-introduced, the options for such borrowing will shrink. Recent financial shocks may, by reducing the availability of a key channel from housing wealth into consumption, prompt a crisis of welfare. They pose challenges for housing and social policy as well as for economic management.

Suggested Citation

  • Sharon Parkinson & Beverley Searle & Susan Smith & Alice Stoakes & Gavin Wood, 2009. "Mortgage Equity Withdrawal in Australia and Britain: Towards a Wealth-fare State?," International Journal of Housing Policy, Taylor & Francis Journals, vol. 9(4), pages 365-389.
  • Handle: RePEc:taf:intjhp:v:9:y:2009:i:4:p:365-389 DOI: 10.1080/14616710903357185
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    References listed on IDEAS

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    Cited by:

    1. Declan French & Donal McKillop & Tripti Sharma, 2017. "Analysis of Housing Equity Withdrawal by its Forms," CHaRMS Working Papers 17-04, Centre for HeAlth Research at the Management School (CHaRMS).
    2. Veronica John Muellbauer & Veronica David M Williams, 2012. "Credit conditions and the real economy: the elephant in the room," BIS Papers chapters,in: Bank for International Settlements (ed.), Property markets and financial stability, volume 64, pages 95-101 Bank for International Settlements.
    3. Dag Einar Sommervoll & Gavin Wood, 2011. "Home equity insurance," Journal of Financial Economic Policy, Emerald Group Publishing, vol. 3(1), pages 66-85, April.
    4. Rachel Ong & Gavin Wood & Siobhan Austen & Therese Jefferson & Marietta E.A. Haffner, 2014. "Housing Equity Withdrawal in Mid-To-Late Life: Patterns and Motivations Amongst Australian Home Owners," Bankwest Curtin Economics Centre Working Paper series WP1406, Bankwest Curtin Economics Centre (BCEC), Curtin Business School.
    5. John Muellbauer & Pierre St-Amant & David Williams, 2015. "Credit Conditions and Consumption, House Prices and Debt: What Makes Canada Different?," Staff Working Papers 15-40, Bank of Canada.
    6. Beverley Searle, 2011. "Recession and housing wealth," Journal of Financial Economic Policy, Emerald Group Publishing, vol. 3(1), pages 33-48, April.

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