Home ownership as a (crumbling) fourth pillar of social insurance in Australia

This paper examines the potential that asset based welfare has to protect households from poverty after retirement by focusing specifically on the role of home ownership in maintaining average living standards and preventing poverty among older Australians. Incomes and housing costs are compared between Australia and six other nations (Canada, UK, USA, Italy, Finland and Sweden) and the likely future trends in Australia examined. Though asset-based welfare has the potential to ease the fiscal constraints faced by the state, it may well lead to poorer social insurance outcomes for households with limited saving capacity over their lifetime. Access to home ownership tends to be more limited than access to the labour market and fluctuations in asset prices can lead to arbitrary shifting of wealth between generations. Social insurance programs can be more readily designed with explicit distributional objectives. By international standards, the older population in Australia has a low average income and a high income poverty rate. However, unlike most other rich nations, more than 80 per cent of people over retirement age in Australia own their own home. After taking account of their lower housing costs, their average living standard and after housing poverty rate is similar to that in the other countries. Nonetheless, the Australian model means that those who miss out on home ownership are multiply disadvantaged and projections suggest that this group will grow in size in the coming decades.