Housing and Pensions: Complements or Substitutes in the Portfolio Allocation?

58 Pages Posted: 8 Apr 2022 Last revised: 21 Aug 2023

See all articles by Loretti Dobrescu

Loretti Dobrescu

UNSW Australia Business School, School of Economics

Akshay Shanker

University of New South Wales (UNSW)

Hazel Bateman

UNSW Sydney, CEPAR

Ben Rhodri Newell

Independent

Susan Thorp

The University of Sydney Business School

Date Written: March 29, 2022

Abstract

We study the relation between retirement savings and housing using a life cycle model of consumption and portfolio choice with risky earnings, lumpy housing with collateralized borrowing, and financial assets inside and outside pension plans. We consistently find complementarity from pensions to housing, and substitutability in reverse. The mechanism behind this asymmetry, and especially how it unfolds across genders, stems from behavioral and housing frictions that jointly drive the timing of savings: incentivizing pension savings boosts homeownership in anticipation of a prosperous retirement, while more attractive housing absorbs pension investments. Decomposing the gender differential in lifetime savings, we show that earnings inequality and preferences drive 64.2\% of the wealth gap, behavioral frictions explain another 33.5\%, and housing adjustment costs, that affect males and females differently, account for the rest.

Keywords: lifecycle savings, portfolio choice, pensions, housing, method of moments

JEL Classification: H8, J26, J32

Suggested Citation

Dobrescu, Loretti Isabella and Shanker, Akshay and Bateman, Hazel and Newell, Ben Rhodri and Thorp, Susan, Housing and Pensions: Complements or Substitutes in the Portfolio Allocation? (March 29, 2022). UNSW Business School Research Paper Forthcoming, Available at SSRN: https://ssrn.com/abstract=4069226 or http://dx.doi.org/10.2139/ssrn.4069226

Loretti Isabella Dobrescu (Contact Author)

UNSW Australia Business School, School of Economics ( email )

High Street
Sydney, NSW 2052
Australia

Akshay Shanker

University of New South Wales (UNSW) ( email )

Kensington
High St
Sydney, NSW 2052
Australia

Hazel Bateman

UNSW Sydney, CEPAR ( email )

High Street
Sydney, NSW 2052
Australia

Ben Rhodri Newell

Independent

Susan Thorp

The University of Sydney Business School ( email )

Abercrombie Building
H70
The University Of Sydney, NSW 2006
Australia
0290366354 (Phone)

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