House prices causing homeowners to work less and retire early
17/10 2016
Author: FCG Admin

IF YOU cashed in big from the booming property market, of course you would consider using the wealth gains to work less or retire early.

And new research, conducted by the Australian Housing and Urban Research Institute (AHURI), suggests there is a growing number of Australians doing just that. But while that is great for individual wellbeing, the research also warns it could lead to economic headaches.

Retiring early and working less

According to the report, house price movements have a significant impact on the participation in the workforce, across both genders and most age groups. “Overall, the analysis provided robust evidence that house price movements have clear and consistent impacts on individual and family wealth and on their labour market activities,” the report said.

This is particularly so for older women, however, who were shown to be the most likely to enter an early retirement thanks to house price gains. For partnered women aged 55 and over who are homeowners, the research reveals a 10 per cent increase in house prices is associated with a 0.29 percentage point decline in labour force participation. This impact becomes even greater for single women homeowners aged 55 and over, where a 10 per cent increase in house prices is associated with a 0.54 percentage point decline in labour force participation.

Garry Barrett, a co-author of the report and professor at The University of Sydney’s School of Economics, told that rising house prices affect women approaching retirement more than men for a number of social and psychological factors. Firstly, he said, it is to do with the fact women retire with less wealth in their superannuation than men, due to lower incomes and time taken out of the workforce to have children.

“In Australia, housing wealth is a big part of people’s retirement savings … This is especially true for women because it is well known that their coverage of the super system is much more patchy and they tend to have less accumulation of wealth [in superannuation]. So this wealth gain for women is more substantial and important for them. That’s why we would expect to see women being more responsive to house price changes.” Mr Barrett said.

But more interestingly, according to Mr Barrett, is that it also comes down to the different psychology of men and women. “On average, men don’t like to retire before their wife,” he said, “whereas women are much more independent; they are not responsive to their partner’s retirement behaviours so much. This is true internationally too — across Canada, the US and across Europe and other developed economies. It is very interesting that we see such an asymmetry between behaviours.”

Rising house prices aren’t just affecting those nearing retirement, either. More surprisingly, it is also influencing the workforce at the other end of the spectrum.

According to the report, among young married couples aged 20-39 years, unexpected growth in house prices is associated with a reduction in number of hours of worked. Specifically, the research found that a 1% increase in house prices leads to a reduction in hours of work by men of 0.39 per cent, and by women of 0.29 per cent, on average.

Good for homeowners, but headache for economy

Working less and retiring early sounds like a dream, and Mr Barrett said it is better for the wellbeing of those homeowners who are in a position to do so.

“In terms of these homeowners, it is good for them. It is good for their welfare,” he told, “For people who are older they are able to do other activities and are able to retire and enjoy a secure retirement. For people who are younger and at the early stages of their family formation, they are able to work less intensively and spend the time on caring activities. So in terms of individual welfare and wellbeing, this is obviously very good for them.”

But while it might be making some homeowners very happy, it is not so happy for the economy. It could present some big risks, especially considering the government has already increased the age at which we can access the Age Pension, in a bid to alleviate the financial burden of our ageing population.

“In terms of the impact on the labour force and productivity at an aggregate level, these are highly productive people who are reducing the labour supply, so there is less overall productivity from our workforce,” Mr Barrett said, “If you are thinking about that in the long-term, governments are trying to encourage or facilitate people having longer careers and being more engaged with the labour market. So this offsets that aggregate goal for the economy that governments often see. As our population ages, we have a smaller fraction of the population in the years where they can be fully engaged in the labour market. It is what they call the dependency ratio and that is going up.”

What this means, he said, is that there is an ever-smaller proportion of the population that can support the rest of our population and keep our economy growing. “The government may want to think about how to keep people engaged with the labour market,” Mr Barrett told

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