6 Summary and conclusions
Data from SOFIE provide a comprehensive picture of property ownership and investment. Sixty percent of all households are home owners. The rate of ownership rises sharply with age until 45 years, and then shows moderate increases among older households. Nearly 80% of households headed by a person older than 75 own the house in which they live. This ownership pattern resembles that prevailing in other countries.
Overall, one in six households have some form of investment property; nearly half of these own a rental property. As the ownership rate drops drastically after age 65, rental property provides a very minor source of income for households in retirement. Apparently, investment in rental property is often liquidated once the household head reaches 65. The pattern of ownership of investment property in New Zealand generally matches that observed in Australia and the USA.
What role does housing play in the wealth portfolio? According to the aggregate data for the household sector, the share of housing wealth in total wealth was 73% in December 2005.[17] An alternative measure can be derived from SOFIE data using the median ratio of net equity in property to total net worth. This measure indicates that for a `typical' household, property represents over half of total net worth. This share increases to over 80% when the population is restricted to households who report ownership of property. Close to one half of property-owning households are outright owners, while among mortgage debtors, about one half have debt under 50% of the property value.
In addressing the role of home equity in retirement income we adopt a life cycle model of consumption smoothing. We find that even if half of housing equity is converted to retirement income, the reduction in the prescribed saving rate is still modest. The prospect of reverse equity mortgages may well play a precautionary role in that housing equity represents a store of value that could be drawn on to meet unanticipated expenditures (such as health and extended life expectancy). However, the results given in this paper suggest that it should not be viewed as a substitute for `adequate' levels of retirement saving.
Notes
- [17]See http://www.rbnz.govt.nz/statistics/monfin/HHAandL2005webcopy.xls.
