Executive summary
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Housing policy is one of the keystones of social policy in Canada and a central pillar of this policy has been the encouragement of private investment in housing by Canadians. To date, most research related to this policy has focused on rates of home ownership. This paper extends this research agenda by asking how much income is generated by investment in owner occupied housing and to what extent this income contributes to the finances of working-age and retirement-age households.
An earlier paper by Brown, Hou and Lafrance (2010) asked whether home ownership adds significantly to the well-being of the retirement-age households in 2006. This paper investigates the contribution of home ownership to income between 1969 and 2006. Since 1969, Canada has gone through several decades that differed substantially in terms of overall economic growth, inflation, and mortgage rates. Using the Survey of Household Spending and its predecessor, the Survey of Family Expenditures, this paper examines how Canadians responded in terms of providing for their own well-being by investing in housing. It does so by investigating the amount of income that is generated by homeowners as a result of their investment in housing. It also examines how this investment in housing has affected the relative incomes of retirement-age and working-age Canadians between 1969 and 2006.
In 2006, implicit income from owner-occupied housing increased the household income of retirement-age households who owned their homes by between 10% and 15% (Brown, Hou, and Lafrance 2010). If the implicit returns to housing have risen over time, not taking into account the implicit income provided by owner-occupied housing would bias the estimates of changes in the relative incomes of working-age and retirement-age households.
The study finds that there has been a gradual increase in the relative economic well-being of the retirement-age households. Before accounting for home equity, from 1969 to 2006 the relative income ratio of households aged 70 and older to the 40-to-49 age class and the 50-to-59 age class increased by 15 and 8 percentage points, respectively.
During this period, Canadians invested in housing assets that provided additional income upon retirement. This implicit source of income from investments in housing increased income on average over the period by 13% and 16% for the 60-to-69 and 70-and-older age groups, respectively. Moreover, this percentage increase has risen over time. Thus, taking into account returns to equity built up in housing, further reduced the income gap between retirement-age and working-age households over the period.
Canadians, supported by housing policies that facilitated home purchases, have continued to invest steadily in home ownership over their lifetimes. As retirement incomes have increased relative to the incomes of working-age households, returns to home ownership have at least kept pace. As such, the gap in incomes between retirement-age and working-age households narrowed even further due to home ownership.
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