Home ownership against the welfare state: the thesis and the evidence

Home ownership against the welfare state:the thesis and the evidenceJim KemenyUppsala UniversityENHR Conference, Cambridge University 2-6 July 2004Plenary AddressMonday 5 July, 2 pmBackground to the thesisWhen I was invited to give a plenary address I was surprised to be asked to takepart in a plenary session on home ownership. My earliest work as a housingresearcher – no less than thirty years ago - was indeed on home ownership, butby the early 1980s I had moved on to other issues, and so at first I was uncertainas to what I could contribute that would be new. On reflection I realised it wasan opportunity to bring up to date and round off my research in this area, andmost particularly to re-visit my original thesis about home ownership andprivatisation in the light of more recent research findings.In the early 1970s housing was a narrowly defined specialism with little interestin drawing on current theories in the social sciences. Housing researchers hadbarely begun to lift their sights beyond housing and examine the relationshipbetween housing and the wider society. The new urban sociology and thepolitical economy of housing began slowly to change this. But the dominantview among English-speaking housing researchers was still that homeownership was “a good thing”, and that as standards of living increased so thepercentage of home owners rose.Yet even a superficial examination of home ownership rates and their trendsover the early postwar period casts considerable doubt on this assumption. I wasintrigued by the fact that home ownership rates showed that a number of richcountries with high material standards of living – like Switzerland, Germany,the Netherlands, Denmark and Sweden - had low rates of home ownership.Leaving aside very poor rural societies like Bangladesh, it was primarily thenew world English-speaking countries that had high rates of home ownership.

Origins of the thesisAs a sociologist I was primarily interested in exploring the privatising impact ofhome ownership on indusstrialised society as a whole. My starting point was toquestion the assumed relationship between home ownership and high materialstandards of living. I then began to develop a critique of the one-sided policyemphasis on home-ownership that was responsible for the creation of what Itermed “monotenural housing systems” that had, I argued, privatising effects(Kemeny, 1981, 1983).My overall argument was that home ownership impacted on society in a widerange of privatising ways, including urban form, public transport, life-styles,gender roles, systems of welfare and social security as well as other dimensionsof social structure. I argued that it created a lifestyle based on detached housing,privatised urban transport based on private car ownership, a traditional gendereddivision of labour based on housewifery, and strong resistance to publicexpenditure that necessitated high taxes which made buying and maintainingsuch a lifestyle more difficult. As a consequence, societies in which homeownership became the normal tenure for all but the poorest households woulddiffer considerably from societies in which renting was made attractive enoughso that significant numbers of middle-income and higher-income householdschose to rent.In countries where long-term housing policy strategies have structured the rentalmarket in such a way as to make renting unattractive - even repellent - as alifelong housing commitment, there is a mad scramble among the young toescape out of renting or even avoid having to rent at all, not even as an interludebetween the parental home and first home.One of the most interesting characteristics of home ownership is the way itredistributes income within the life-cycle of individuals from youth to old age.This redistribution often begins with saving for a deposit, sometimes long beforebecoming a first-time buyer and while living in rental housing or even in theparental home. It continues with cripplingly high mortgage repayments intomiddle age. In countries with an extreme emphasis on home ownership, such asIceland where 70 percent of households are home owners, such a parentaldependency phase of life can extend well into the thirties in a phenomenon thathas come to be known as “Hotel Mamma” (Sveinsson, 1999).Given that the mortgage burden on first-time buyers can consume up to a thirdof household income, while an elderly household in a mortgage-free home thatneglects maintenance – not to mention minimal prevention of normal structuraldeterioration - can push housing costs down to little more than heating costs, thelife cycle redistributive impact of home ownership can be very substantial. This

in turn raised interesting questions as to whether this income-redistributiveeffect is sufficient to create a symbiotic relationship between home ownershipand welfare. I suggested that it was sufficient.The ThesisThe thesis was initially developed in the Australian context during the late 1970swhile I lived there (Kemeny, 1977, 1980a) but became more generalised in mycomparative work (Kemeny, 1978, 1980b, 1981). I argued that in societes withlow public retirement pensions and poor welfare provision for the elderly,households are forced to make private provision for their old age. That is, theyare forced to devote resources already in early adulthood to ensure levels ofprivate savings so that personal capital can be accummulated to secure their oldage. There are many ways this can be done, including private pension schemesor building up a nest egg in the form of either a savings account or stock marketshares. Among these choices is also a decision to become a home owner in theexpectation of having low housing costs in old age to eke out the public pension,and even trading down to release savings to supplement meagre pensions.In countries where policy encourages this strategy paying for a home - and oftena car as well - will act as a strong deterrent to welfare and social security fundedby increasing taxation.I therefore posited a negative relationship between home ownership and welfare,focusing on 8 OECD countries: three with low home ownership rates (Sweden,West Germany and The Netherlands), two with average home ownerships rates(UK and France) and three with high home ownership rates (USA, Canada andAustralia). I compared these countries in terms of three very general aggregateindices of welfare (current government expenditure as a percent of GNP, totaltaxation as a percent of GNP, and percent of income paid in direct taxes)Without doing any statistical tests on these data they never the less did suggestthat there was a negative relationship between home ownership rates andwelfare provision (Kemeny, 1980 Table 1).I followed this with a somewhat closer examination of three countriesrepresenting the extremes and the middle, comparing one country with a highhome ownership rate (Australia), one with a medium home ownership rate (UK)and one with a low home ownership rate (Sweden). The differences appeared tobe very suggestive of a negative correlation between home ownership andwelfare (Table 1).

Table 1Home ownership rates and social security in Australia, Britain and SwedenCountry Australia Britain SwedenHome ownershipRate 1970-71 68 55 35Govt finalConsumption 24 33 47Expenditure as% of totalper capita govtexpenditure onsocial welfare & 300 500 650health (US$)state married retirementpensions as 26 30 66% of average incomeUnemploymentbenefits as % of 23 38 82average weeklyearningsSource: Kemeny, 1980b Table 2But, of course, data from three countries are quite inadequate to test the thesis.More complex statistical analysis would be needed to provide an initial test.The years went by, but the ideas were neither taken up nor tested by housingresearchers and it appeared that there was no interest in pursuing it. I wastherefore surprise when twenty years later the thesis was subjected to ten-yearinterval correlation analysis using OECD statistics – not, I have to stress, by ahousing researcher but by a comparative welfare researcher. Even in the late1990s research on the relationship between housing and welfare remainsdisgracefully under-developed.The evidenceMy thesis was tested by Castles (1996, 1998), a political scientist by trainingwho at the time was professor of public policy at the Australian NationalUniversity. Castles conducted a statistical analysis of the relationship betweenrates of home ownership and various indices of public welfare in 20 OECDcountries. He examined these at four-decade intervals: 1960, 1970, 1980 and1990. He found that, with the exception of public health, there were strong to

moderately-strong inverse relationships between various indices of welfare andrates of home ownership in 1960, and that although they gradually weakenedover the ensuing decades, they were still evident in 1990. Table 2 summarisesthese findings.Table 2CORRELATIONS BETWEEN HOME OWNERSHIP LEVELS ANDMEASURES OF GOVERNMENT REVENUES ANDEXPENDITURES 1960-1990Revenues Outlays total social protection expenditure1960 -.79* -.76*** -.75***1970 -.61*** -.61*** -.81***1980 -.68*** -.59** -.76***1990 -.52** -.54** -.54**The number of asterisks indicate different significance levels:* = < 0.1** =

more generally termed a divergence perspective on housing and welfare(Kemeny, 1992: 181-186, Kemeny and Lowe, 1998).Castles is critical of what he understands as my implicit one-sided focus on theimpact of home-ownership on welfare, and suggests the relationship is morecomplex. He concludes his article:“Finally, the assumption implicit in Kemeny’s work and much of what is said above is thatthe extent of home ownership impacts on the form of the welfare state. But that is only oneway of reading the coefficients reported in Table 2. There is no a priori reason why therelationship may not be entirely the other way around, with a weak welfare state providing anincentive to home ownership as a means of life cycle saving or a well developed state taxcrowding out the possibility of saving for private home ownership. To establish a betterunderstanding of the diverse linkages which undoubtedly exist between what are, from thepoint of view of individuals and families, the largest expences they confront – providing forold age and providing for shelter – requires much further research.” (Castles, 1998: 17-18)I would fully agree with this. In the late 1970s I was not concerned withexplaining the direction of the relationship, only that it exists. Rather I wasconcerned to explain differences in urban form, gender roles, welfare and otheraspects of privatisation between home-owning societies like Australia andrenting societies like Sweden.Now things are, of course, much changed. In the wake of the oil crisis of the 70sand the resurgence of reactionism in the 80s, the privatisation of welfare inmany countries is opening up the possibility that even the most stable welfarestates may begin to witness a shift to home ownership as ordinary people lookfor ways to minimise the looming threat of poverty and deprivation in old age. Itis therefore of some interest to briefly revisit the thesis in relation todevelopments in Swedish welfare for the elderly over the last decade.The end of the Swedish security welfare: a predictionSince the mid-1990s there has been a dramatic deterioration in public welfarefor the elderly in Sweden. This is most noticeable in two key areas – pensionsand institutional care - retirement homes and nursing homes - for the elderly.In the mid-1990s the pension system – called ATP - introduced in the 1970s wasscrapped. The ATP was an unusually secure and advantageous pension system.It was index-linked and easy to calculate: you would receive the full pensionafter 15 years employment and it would amount to 80 percent of the incomeearned calculated as an average of the best 5 of those years: more if the pensionfunds prospered.

In its place was put a pension system which was both much advantageous andless transparent. The message that the social democratic government was givingwas crystal clear: the new pension system would be much less generous than theATP and “uncertainty” became the keyword. It was stressed that many factorswill contribute to how much your final pension will be. and everyone was urgedto take out a private pension to supplement the new, reduced, public pension.Parallel with this, the social democratic government has been rationalising thehealth services. The first signs of this appeared already in the early 1990s whena national strike by Sweden’s (predominantly female) nursing staff for bettersalaries was defeated. Since then, cutbacks in staffing levels, aggravated bydifficulties in recruiting nursing staff and accummulating over the last ten yearshave resulted in increasing concern over and protest against declining healthcarestandards, apparent in long waiting times for hospital appointments and foremergency treatment.But the most serious declines in health service standards have been in the care ofthe elderly combined with declining availability of retirement and nursinghomes. Fewer staff responsible for more residents and the resultant workpressures have generated a number of high profile elderly-care scandals.Television shots of gangrenous bedsores, investigative reports of neglect andlow standards and of acute shortages of places in retirement homes have allraised public awareness that the welfare system is being increasingly starved ofthe resources to take care of us in our old age.These two changes – reduced pensions and decreasing standards of elderly careare, in combination, a potent incentive for private accumulation, in which homeownership is one obvious coping strategy, both to reduce the costs of housing inold age to eke the pension out and to provide a capital buffer against the daywhen private care has perforce to be paid for.I will therefore risk sticking my neck out with the prediction that oneconsequence of this will be that - quite apart from how competitive Sweden’sintegrated rental market will become, - there will be an increase in homeownership, that will ultimately lead to the demise of renting as a realistic andcompetitive alternative. It could happen quite suddenly as a rush, or even astampede, among younger households to buy housing. But – and this is whereCastles statistical analysis remains undeveloped - it will not be apparent in thedata for several decades. For it is today’s young and newly-formed householdswho, looking towards their futures, are in a position to make housing long-termdecisions. Those in middle age or later who had chosen to rent at a time whenthe pension system and care for the elderly were far superior have long sincemissed the boat.

Final wordsThere is growing awareness that this relationship is important (e.g. Doling andHorsewood, 2003). But so far housing researchers have neglected the conduct ofrigorous analyses of the synergic relationship between housing and welfare.Castles calls this relationship “the really big trade-off”,which is also the title ofCastles (1998). He calls for more research on this critical relationship:“To establish a better understanding of the diverse linkages which undoubtedly exist betweenwhat are, from the viewpoint of individuals and families, the largest expences they confront –providing for old age and providing for shelter – requires much further research.” Castles,1998: 18)It is to be hoped that this is not an issue that housing researchers will continue tosimply abdicate responsibility for and leave to welfare researchers to do. Thankyou.

ReferencesCastles, Francis G.1982The Working Class and Welfare: reflections on the political development of thewelfare state in Australia and New Zealand Wellington: Allen and UnwinCastles, Francis C. and Maurizio Ferrera1996“Home Ownership and the Welfare State: is Southern Europe Different?”South European Society and Politics 1, 2: 163-185Castles, Francis G.1998“The Really Big Trade-Off: Home Ownership and the Welfare State in the NewWorld and the Old”Acta Politica 33, 1: 5-19Doling, John and Nick Horsewood2003“Home ownership and early retirement: European experience in the 1990s”Journal of Housing and the Built Environment 18: 289-308Kemeny, Jim1977“A Political Sociology of Home Ownership in Australia”Australian and New Zealand Journal of Sociology 13, 1: 47-52Kemeny, Jim1978“Forms of Tenure and Social Structure”British Journal of Sociology 29, 1: 41-56Kemeny, Jim1980a“The Political Economy of Housing”in E.L. Wheelwright and Ken Buckley (eds.) The Political Economy ofAustralian Capitalism” (Vol.4) Sydney: ANZ Book Co. ch.7 pp.172-191Kemeny, Jim1980b”Home Ownership and Privatisation”International Journal of Urban and Regional Research 4, 3:372-88

Kemeny, Jim1980The Myth of Home Ownership: private versus public choices in housing tenureLondon: RoutledgeKemeny, Jim1983The Privatised City: critical studies in Australian housing and urban structureCURS Occasional Paper No.10, new series, University of BirminghamKemeny, Jim1992Housing and Social Theory London: RoutledgeKemeny, Jim and Lowe, Stuart1998“Schools of comparative housing research: from convergence to divergence”Housing Studies (March) 13, 2:161-176Sveinsson, Jon-Runar1999Society, Urbanity and Housing in IcelandMasters Thesis, Uppsala University (Institute for Housing and Urban ResearchWorking Paper 23