Why Asset Based Welfare Can't Work: Debt, Demography, and the Disastrous 2010s

This paper addresses the idea that asset based welfare can never work in practice.  It raises four main points. First, where home ownership is currently not widespread (e.g. Germany), or where it is widespread but not accompanied by a liquid mortgage market, demographic developments suggest that home prices will fall continuously in real terms. For asset based welfare to work, new cohorts have to purchase housing from elderly households. Second, the illiquid mortgage finance systems in countries like Italy magnify this problem, as even those few new homeowners who do show up in the market will not be able to mobilize savings to purchase homes. Third, societies with widespread, mortgage financed homeownership, like the Anglo-economies, already have a weak form of asset based welfare. But rising income inequality means that even though higher fertility rates permit a one-for-one transfer of the housing stock, the proportion of newly entering cohorts that can actually qualify for a mortgage will be smaller than the cohort that is trying to retire by liberating the value of their house. Finally, the whole purpose of public pension systems is to remove longevity risk and volatility in the aged population. But asset based welfare reintroduces both problems. This makes it a particularly perverse policy solution, as it replaces reasonably stable public pension systems with an unstable, inadequate and stratifying private pension system