Future retirees likely to face lower homeownership which may pose challenges for retirement income adequacy
New research, published today by the ESRI, finds that future cohorts of retirees are likely to have substantially lower rates of homeownership than current retirees. The research – funded by the Pensions Council – estimates that 65 per cent of those currently aged 35-44 are likely to become homeowners by retirement given current trends, compared to 90 per cent of those currently aged 65+.
Lower homeownership rates mean a higher proportion of households in the rental sector and the continuation of rental payments into retirement. The research finds that reductions in homeownership of this magnitude could raise the proportion of older people (aged 65+) living in income poverty on an after-housing cost (AHC) basis, from 14 per cent at present, to as high as 31 per cent. The research draws on data from the Survey on Income and Living Conditions (SILC) and the Irish Longitudinal Study on Ageing (TILDA) to develop a number of possible scenarios around the potential level of future homeownership in order to calculate the potential impact on income poverty rates in retirement.
- Ireland has experienced a marked drop in homeownership rates in recent years. This has been particularly acute for younger-aged households, with the share of 25-34 year olds living independently who own their own home more than halving between 2004 and 2019, falling from 60 per cent to just 27 per cent.
- In comparison with current retirees (aged 65+) where the homeownership rate is around 90 per cent, homeownership rates are around 10 percentage points lower (approximately 80 per cent) for those currently aged 55-64 and 45-54; this differential is unlikely to close substantially for these groups given their position in the lifecycle.
- The homeownership rate for those aged 35-44 is currently 58 per cent. The modelling indicates that under current trends this is likely to reach 65 per cent and with supports this age cohort could reach a homeownership rate of 71 per cent.
- There is greater uncertainty over the 25-34 age group given their age and lifecycle earnings prospects. Nonetheless, the simulated rate of homeownership is lower again for the youngest age group, 25-34, with approximately one-in-two households likely to become homeowners in the majority of scenarios explored.
- Lower rates of homeownership are likely to lead to substantially higher income poverty rates after-housing costs (AHC) in retirement. The research finds that AHC income poverty rates for those approaching retirement would reach 31 per cent under a low future homeownership scenario, 28 per cent under a medium future homeownership scenario, and 21 per cent under a high future homeownership scenario, compared to 14 per cent at present.
While further income-based supports or direct housing cost interventions for future groups of retirees most at risk of income poverty could be considered, additional supports would likely place significant costs on the Exchequer given the scale of the projected fall in homeownership for future retirement cohorts. Therefore, policy interventions at earlier stages of the lifecycle are critical to help lower the costs of housing that future cohorts will face in retirement. Increased supply and other housing policy interventions can impact the share of homeowners, while increased direct provision of social housing or policies that develop alternative, non-market renting options such as cost rental can all help to lower the cost of housing in retirement, and thereby reduce the share of retirees in income poverty.
Dr Rachel Slaymaker, lead author of the report commented: ‘Homeownership in retirement currently provides a double dividend – lower housing costs and higher assets in retirement. Our findings suggest that homeownership rates will be substantially lower for future cohorts, particularly those currently aged 45 and under. Without intervention this will lead to significantly higher rates of income poverty in retirement for these cohorts.’
Roma Burke, Chair of the Pensions Council commented: 'the ESRI has predicted that 1 in 3 people aged 35-44 now won’t own a home by the time they retire. If you don’t own your home by the time you retire, your living expenses are still going to be significant, even if your income falls. This could cause many more older people to be at risk of poverty in the future, unless action is taken to address this important challenge.'