Retirement Welfare Outcomes with Home Equity Release under Means-Tested Pensions and Spatial Variation

This study investigates the persistently low uptake of home equity release products in Australia by evaluating the Government’s Home Equity Access Scheme (HEAS), which is integrated with means-tested pension income. We propose an alternative, flexible downsizing option that facili- tates relocation and employ it to infer the demand for HEAS. Using a recursive utility model, we model retiree decisions around consumption, bequests, and exposure to house price and longevity risks across areas. The analysis accounts for means-testing rules and health-related expenditure variation across health states. Our findings show that asset-rich but income-poor retirees benefit the most from HEAS. However, the scheme’s restrictive withdrawal rules, whereby allowable with- drawals decline as pension income increases, limit its usefulness for full pensioners and discourage participation by highly risk-averse individuals. We also find that HEAS is most attractive to those with low bequest motives and a high willingness to shift consumption over time. Furthermore, we identify key characteristics of suburbs where HEAS is more likely to be demanded: larger home equity sizes, lower current but higher predicted house prices, and longer life expectancy.