Housing Wealth and Recession

Beverley A SearleUniversity of Durham

Housing Studies Annual Conference: 14-16 April 2010

University of York

• Introduction • The social and economic costs of recession • Mortgage Equity Withdrawal through

booms and busts• Conclusion: Housing Wealth in a changing

climate

IntroductionChanging role of housing wealth

investment versus use value

Global markets + individual risks

Recession in the UK 1970-2009

1970 Q1 1974 Q3 1979 Q1 1983 Q3 1988 Q1 1992 Q3 1997 Q1 2001 Q3 2006 Q10

20

40

60

80

100

120

GD

P

The Social and Economic costs of recession 1 : Unemployment

1971 Q11975 Q21979 Q31983 Q41988 Q11992 Q21996 Q32000 Q42005 Q12009 Q20

2

4

6

8

10

12

14

0

20

40

60

80

100

120

Men WomenGDP (Left Axis)

% U

nem

ploy

ed

GD

P

The Social and Economic costs of recession 2 : Divorce

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

0

2

4

6

8

10

12

14

16

0

20

40

60

80

100

120

England + Wales (rate per 1,000 married people)GDP (left Axis)

Div

orce

Rat

e

GD

P

Divorce Re-form Act

1969

Matrimonial Causes Act

1973

Matrimonial & Family Pro-

ceedings Act 1984

Family Law Act 1996

House Price change and MEW

19831986

19891992

19951998

20012004

2007-10000

-5000

0

5000

10000

15000

20000

-8

-6

-4

-2

0

2

4

6

8

10

12

Housing equity withdrawal, £mn (SA)Halifax House Price Index (% change)

Equ

ity

Wit

hdra

wn

(£m

n) S

easo

nally

adj

uste

d

% c

hang

e in

hou

se p

rice

inde

x

Social and Economic costs of recession 3 : Repossession

19701973

19761979

19821985

19881991

19941997

20002003

20062009

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

Mortgage Equity Withdrawal (MEW): setting the scene (Smith and Searle, 2008):

Growing trend in in-situ MEWAmounts withdrawn are substantialRoutes of MEW – from housing repairs to welfare?

Home im-provements

Home ex-tension

Car purchase Other con-sumer goods

Other reason0%

10%

20%

30%

40%

50%

60%

70%

80%1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Routes of MEW: Financial Buffer (Benito, 2007; Hurst and Stafford, 2004)Insurance (Parkinson et al, 2010) SKIers vs Life Cycle Model

Mortgage Equity Withdrawal (MEW) through booms and busts

BHPS (1994 – 2007) / Understanding Society (2008)Sample frame: Home owners (couples + single person hh)

who have not moved between wavesEquity savers (have not withdrawn equity)Equity borrowers (have withdrawn equity)

Table 1: Proportion of owner-occupiers who withdraw equity

N %Equity savers 6,346 48.4Equity borrowers 6,774 51.6Total 13,120 100.0

19941995199619971998199920002001200220032004200520062007200815.0%

16.0%

17.0%

18.0%

19.0%

20.0%

21.0%

% e

quit

y bo

rrow

ers

Equity borrowers: Younger (u55) rather than older (55+)Households with childrenEmployedIn a relationship

Managing debt + meeting demands: Self-employedUnemployed / Relationship breakdown

Stable vs changing states

Wealth portfolios + debt

Equ

ity

Bor

row

ers

Equ

ity

Save

rs

Equ

ity

Bor

row

ers

Equ

ity

Save

rs

Investments Non-household debt

£0£1,000£2,000£3,000£4,000£5,000£6,000£7,000

199520002005M

ean

Managing housing payments: Housing payments required cut backs

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

0

10

20

30

40

50

60

0

1

2

3

4

5

6

Proportion who equity borrow (Left Axis)

Proportion of owner-occu-piers (Right Axis)

% w

ho e

quity

bor

row

% o

f ow

ner-

occu

pier

s

Conclusion: Housing Wealth in a changing climate

Role of housing wealth is changing

MEW as an insurance: through booms and busts?

Further research.....Recession ,Relationships and RemortgagingHousing wealth in recessionOwner-occupation in recession