Housing in the Household Portfolio and Implications for Retirement Saving: Some Initial Finding from SOFIE

Housing is an important sector of the economy. It has widespread implications for investment, banking, saving and employment. Home ownership has been linked to building social capital and a sense of community. Furthermore housing equity is a significant element of retirement accumulation for many New Zealanders. The Treasury maintains a programme of work related to housing, saving, wealth accumulation and retirement. The results of this contribute to Treasury's role in providing advice to the Minister and at the same time informing a wider group of external stakeholders. This paper uses unit record data from a new panel survey (SOFIE) to study housing wealth in household portfolios. It then estimates the rates of saving that would be needed to smooth consumption between pre- and post-retirement. Finally it explores the effect of some home equity withdrawal on the required saving rates. The main findings of this study are: • 60% of households are recorded as owning a home; • Almost half of home-owning households have no mortgage debt; • One in six households own residential investment property; • One in twelve households own a rental property; • Patterns of property ownership in New Zealand are similar to those in selected comparator countries; • Housing represents a major share of household wealth, and this share has risen in line with the increase in house prices; • The composition of household portfolios is comparable to other selected countries except for the USA ; • Empirical results indicate that even if households planned to draw down half of housing equity to support retirement income, the impact on the saving rate needed to smooth consumption would be modest.