The reverse mortgage: a tool for funding long-term care and increasing public housing supply in Spain
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The reverse mortgage: a tool for funding long‑term care and increasing public housing supply in Spain Roberto Martinez‑Lacoba1,2,4,5 · Isabel Pardo‑Garcia1,3,4,5 · Francisco Escribano‑Sotos1,2,4,5 Received: 14 January 2020 / Accepted: 3 November 2020 © Springer Nature B.V. 2020
Abstract Population ageing is one of the most significant challenges facing the world in the twentyfirst century. Furthermore, people aged over 65 typically have a level of income below the national average, but the homeownership rate among those in this age group tends to be high. Equity release schemes, specifically reverse mortgages, can help cover increased care costs and ensure a reasonable level of income, thus guaranteeing the well-being of older adults. However, this product has not been greatly developed by private entities. If the State were to implement this financial operation through public administrations, it could obtain homes that might then be included in public housing stocks. Thus, our paper aims to contribute to the literature on government-based reverse mortgage systems. Under our assumptions, the results showed that if 313,833 homes were reverse-mortgaged, the investment by the public administration would be around 0.73% GDP, with this being a feasible proposal. This work helps to create alternative methods to finance problems related with the ageing of societies from a public perspective. Keywords Reverse mortgage · Public finance · Housing · Ageing · Dependency · Welfare state * Roberto Martinez‑Lacoba [email protected] Isabel Pardo‑Garcia [email protected] Francisco Escribano‑Sotos [email protected] 1
Facultad de Ciencias Económicas y Empresariales, Universidad de Castilla-La Mancha, Ciudad Real, Spain
2
Departamento de Análisis Económico y Finanzas, Universidad de Castilla-La Mancha, Ciudad Real, Spain
3
Departamento de Economía Política, Hacienda Pública, Estadística Económica y Empresarial y Política Económica, Universidad de Castilla-La Mancha, Ciudad Real, Spain
4
Centro de Estudios Sociosanitarios (CESS), Universidad de Castilla-La Mancha, Ciudad Real, Spain
5
Grupo de Investigación en Economía, Alimentación y Sociedad (GEAS), Universidad de CastillaLa Mancha, Ciudad Real, Spain
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1 Introduction The demographic changes to come during the twenty-first century, created by rising life expectancy and a falling fertility rate, represent a challenge for society due to the increase in demand for care. The population of the most industrialized countries is ageing, with a growing number of people aged 85 and over, the oldest age group (Colombo et al. 2011). The Directorate-General for Economic and Financial Affairs of the European Commission believes these changes could affect the sustainability of public finances (European Commission 2018), and has consequently analysed long-term budget estimates based on the most recent population projections provided by Eurostat. According to this report, the percentage of dependent elderly people wil
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