The homeownership rate of the elderly and the Life Cycle Hypothesis: European evidence with data at the household and individual level

One of the central predictions of the Life Cycle Hypothesis is that individuals should run down their wealth during retirement. Although housing wealth is the largest component of total household wealth in most countries, the empirical evidence supporting the decumulation hypothesis is mixed. In this paper we examine the housing tenure decision of the aged with microdata at both the household and individual level. The results, based on data from the European Community Household Panel for thirteen European countries, show that for nearly all countries (except for Germany and Denmark) the homeownership rate of the elderly does not decline with age, rejecting the Life Cycle Hypothesis. The results are robust to the level (household or individual) data is analyzed. The estimates also show a significant positive cohort effect for most European countries, so that the later the year of birth the higher the homeownership rate.