Debasing Asset-based Welfare

by Ken Gibb

After a short period submerged in the co-ordination of a research bid I have resurfaced. I did manage to get to the annual Housing Studies Association conference in York last week. I was struck how often one theme recurred: the increasing reliance on, and growing critical academic scrutiny of, the different possible policy uses of owner-occupied housing wealth.

It has been recognised since the Thatcher 1980s and the controversial work of people like Peter Saunders that the large-scale growth of home ownership in a context of long run rising real house prices – can deliver significant redistributions of wealth between households, over generations and across differently performing housing market regions. This means that how the lifetime wealth of a household is changed by long term home ownership (including their capacity to transfer it on to succeeding generations, or allow it to stand in for a pension and support consumption in later life) is the outcome of a relatively arbitrary set of occurrences.  It is about timing of purchase and disinvestment, about the location of your home, your family circumstances (e.g. the effect of divorce and household dissolution), the size of your pension and your constrained choices.

Even with more than 2 in 3 owning their homes, there is no guarantee of holding housing wealth, or being able to use it when you would need or want to. So, this is not a very promising basis for a wider policy of asset-based welfare, despite the more or less explicit support for it in some think tank and political quarters. To paraphrase John Hills during the Turner Pensions Commission, relying on homeowner housing wealth as a way of supporting pension income in older life is arbitrary and ad hoc; it is no alternative to a comprehensive pension policy. So, and despite all those non-home owners (including those who do not have help meeting large deposits from housing-rich parents and grandparents), this is not a sustainable cheap solution in the age of austerity.

What was so interesting at the HSA conference was the different ways these ideas are starting to unravel. First, we have at best only an imperfect idea of housing wealth transfer empirically,what the drivers are and  how it has been used over time? We do not know how older households at the margin make decisions about the division and timing of their housing assets, what constraints they face and what policy levers might influence them.

Second, the housing asset-based welfare option actually reflects long term inter-generational consequences of maintaining the privileged tax status of one investment class in a context of unresponsive housing supply and hence volatile (though trending upwards) house prices.

Third, and relating to another big policy controversy, there was an interesting paper on East Asia by my colleague Richard Ronald. Richard pointed to an interesting policy development in Japan – elderly home owners seeking to downsize enter into an agreement with a state agency, wherein they vacate their home and move to a smaller property receiving an annuity and allowing a larger family into their former (larger) home. All the more interesting when set against the UK bedroom tax and the wider interest in under-occupation.

All in all, it should be made clear that past housing equity gains, which can only be transferred once, are a poor basis for remaking the welfare state in the 21st century. It may be superficially attractive for the reasons alluded to earlier, but it is highly unevenly spread, arbitrary and capricious in its generosity, and highly uncertain going forward.  Tony O’Sullivan and I argued in a paper last year that there is scarcely any macroeconomic argument for preferentially treating home ownership, and that the limited positive microeconomic arguments to do with parenting and education benefits are clearly targeted ones rather than general to all. To these arguments we should add skepticism about whether home ownership in its current setting could ever be a viable asset-based welfare social policy instrument.