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

Jim Been, Casper van Ewijk, Marike Knoef, Roel Mehlkopf and Sander Muns

The Journal of the Economics of Ageing, 2024, vol. 27, issue C

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.

Keywords: Life cycle model; Welfare effects; Housing wealth; Heterogeneity (search for similar items in EconPapers)
JEL-codes: D14 D15 D61 E21 H55 J32 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:joecag:v:27:y:2024:i:c:s2212828x23000592

DOI: 10.1016/j.jeoa.2023.100499

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