Housing Equity Release, Old-Age Income, and Public Finances

20 Pages Posted: 18 Aug 2015

See all articles by Niku Määttänen

Niku Määttänen

ETLA, Research Institute of the Finnish Economy

Tarmo Valkonen

ETLA, Research Institute of the Finnish Economy

Date Written: April 19, 2015

Abstract

Many elderly people could markedly increase they standard of living by releasing housing equity. Purchase of a life annuity would increase the benefits of this release. Focusing on the Finnish case, we analyze the fiscal implications of different forms of housing equity release. We take into account the fact that most households have most of their wealth in the form of owner housing and that housing enjoys a tax-favoured status relative to most other forms of consumption and savings. We find that even tax free life annuities may well increase aggregate tax revenue relative to a situation where private annuities are not available. This is because the possibility to annuitize financial savings increases the opportunity cost of housing wealth inducing households to increase non-housing consumption relative to (tax-favoured) housing consumption. Reverse mortgages, in contrast, are likely to decrease tax revenue. This is because they make housing consumption all the more attractive.

JEL Classification: -

Suggested Citation

Määttänen, Niku and Valkonen, Tarmo, Housing Equity Release, Old-Age Income, and Public Finances (April 19, 2015). Netspar Discussion Paper No. 04/2015-019, Available at SSRN: https://ssrn.com/abstract=2645640 or http://dx.doi.org/10.2139/ssrn.2645640

Niku Määttänen (Contact Author)

ETLA, Research Institute of the Finnish Economy ( email )

Lonnrotink. 4 B
FIN-00120 Helsinki, 00120
Finland

Tarmo Valkonen

ETLA, Research Institute of the Finnish Economy ( email )

Lonnrotink. 4 B
FIN-00120 Helsinki, 00120
Finland

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