The inversion of the 'really big trade-off': homeownership and pensions in long-run perspective

The hypothesis of a trade-off between homeownership and welfare state provision, first proposed by Jim Kemeny around 1980, is a foundational claim in the political economy of housing. However, the evidence for this hypothesis is unclear at both macro and micro levels. This paper examines the link between welfare and homeownership at the macro level using new long-run data and a multilevel modelling approach. It shows that the negative cross-sectional correlation between homeownership and public welfare provision observed in the earliest available data disappears and becomes neutral by the 1980s and possibly positive subsequently. Within-country trajectories vary, but are significantly positive in more countries than significantly negative, suggesting that in some contexts welfare and homeownership are complements rather than competitors. The paper posits a dual ratchet effect mechanism in both pension benefits and homeownership capable of producing this inversion, and further suggests that rising public indebtedness and the debt-stabilising effects of welfare states may account for the emergence of complementarity in the pension-homeownership relationship. The latter supports the hypothesis that some countries have avoided the trade-off by 'buying time' on credit markets.