A life-cycle analysis of social security with housing

This paper incorporates two features of housing in a life-cycle analysis of social security: housing as a durable good and housing market frictions. We find that both housing quantities and homeownership rates respond strongly to eliminating social security. Accordingly, the aggregate impacts of this policy reform are significantly larger in an economy with explicit housing choices than in a standard life-cycle economy. Our analysis shows that the key mechanism behind these results is the substitution effects of a change in interest rates and, thus, the price of housing services on the choice of nondurable consumption versus housing services. (C) 2009 Elsevier Inc. All rights reserved.