Stochastic modelling of the home equity access scheme

The housing wealth of elderly homeowners is emerging as a key asset to support Australians in retirement. The Australian government's Home Equity Access Scheme allows elderly Australians to access the equity in their home and utilise this illiquid wealth. Through stochastic modelling of the scheme, this paper compares two strategies of drawing down housing wealth and provides a framework for comparing strategies that balances income, flexibility and longevity protection. The first strategy supplements other sources of retirement income, whereas the second strategy is similar to a contingent deferred annuity, with non-housing assets drawn down first. Although results vary by cohort and objective, the role of the scheme as a vehicle to protect against poverty in old age is emphasised. This reinforces the potential of home ownership as a financial asset in retirement, in addition to benefits conferred through housing ownership over the entire life cycle.