The inversion of the ‘really big trade-off’: homeownership and pensions in long-run perspective

Tod Van Gunten,Sebastian Kohl

doi:10.1080/01402382.2019.1609285

Tod Van Gunten, Sebastian Kohl

Open Access

https://doi.org/10.1080/01402382.2019.1609285

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Abstract

The hypothesis of a trade-off between homeownership and welfare state provision, first proposed by Jim Kemeny around 1980, is a foundational claim in the political economy of housing. However, the evidence for this hypothesis is unclear at both macro and micro levels. This paper examines the link between welfare and homeownership at the macro level using new long-run data and a multilevel modelling approach. It shows that the negative cross-sectional correlation between homeownership and public welfare provision observed in the earliest available data disappears and becomes neutral by the 1980s and possibly positive subsequently. Within-country trajectories vary, but are significantly positive in more countries than significantly negative, suggesting that in some contexts welfare and homeownership are complements rather than competitors. The paper posits a dual ratchet effect mechanism in both pension benefits and homeownership capable of producing this inversion, and further suggests that rising public indebtedness and the debt-stabilising effects of welfare states may account for the emergence of complementarity in the pension‒homeownership relationship. The latter supports the hypothesis that some countries have avoided the trade-off by ‘buying time’ on credit markets.

Highlights

IntroductionThe inversion of the trade-off reflects a process of upwards convergence: a simultaneous increase and decline in variance in both pension generosity and homeownership levels
We suggest that the trade-off lost its ‘bite’ because political elites have avoided passing the costs of social policy directly on to homeowners
We have shown that the evidence supports the latter: simultaneous increase in both homeownership and pensions in most countries

Summary

Introduction

The inversion of the trade-off reflects a process of upwards convergence: a simultaneous increase and decline in variance in both pension generosity and homeownership levels For most countries, this contradicts the secondary, longitudinal social insurance hypothesis proposed by Castles (1998): the argument that declining welfare provision might incentivise households to pursue homeownership as a form of self-insurance. It is important to recognise the heterogeneity of country trajectories This inversion of the trade-off relationship raises the question of why the cross-sectional pattern changed over time (or, equivalently, why within-country longitudinal trajectories vary so widely). We adopt a multilevel modelling approach that enables us to both distinguish between longitudinal and cross-sectional effects (Bell and Jones 2015) and remain attentive to the heterogeneity of within-country trajectories (Western 1998).

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