Projectfunded under the
Socio-economic Sciences and Humanities
Past and future development in public policies towards homeownership and the use of housing wealth
The Case of Belgium
DEMHOW
Demographic Change and Housing Wealth
Workpackage 3
Deliverable No. 10
February, 2009
Vicky PalmansPascal De Decker
Department of Applied Engineering (INWE)
University College Ghent
1
Contents
1.Introduction
2.Basic demographic trends and framework
3.Housing policies and their consequence on tenure structure
4.Public policies related to alternative solutions and institutions for the release of housing equity
5.Tax regimes
6.Health care and elderly care institutions
7.Welfare programs, especially towards low-income households (state/local level), among them the elderly
8.Pension Systems and Equity owned by pensioners
9.Summary and Conclusions
10.References
11.Appendix
List of Tables and Figures
Table 1. Basic demographic data and main indicators
Table 2. The financing of the purchase of the construction of an own house, Flanders, 1995-2005
Table 3. The limit amount of money that needs to be paid on medical services
Table 4. Percentage of each sector in the ZIV-expenditures between 1997-2002:
Table 5. Comparison of the social statute of employee and self-employed.
Table 6. Number of citizens divided under age-groups
Table 7. Number of citizens divided under age-groups and gender
Table 8. working, unemployment and non-actives in 2007
Table 9. employment rate of 15 till 64 years of age from 1997-2007
Table 10. unemployment in educational degree (2001-2006)
Table 11. Actual exit age from labour market (2001-2007) over the different countries and gender
1.Introduction
Seven out of ten Belgians are home-owners, but the number is higher in the Flanders (72%) then in the Walloon Region (66%). Even 22% is owner of a second property: abuilding land (17%), a second residence they use themselves (28%) or let out a short period of time (8%) or a residence they letout for longer periods of time (40%) (De Tijd, 2008). These are high numbers. In this paper we will investigate which policies might have lead to this development. We will also explore in what way people see the possession of their own house as part of their pension during old-age.
When writing, the financial and the successive crisis hit Belgium (like many other European countries).Since the Belgium and Flemish government decided to save the engaged banks (either through nationalise them or through securing the deposits), so far only shareholders are losing money. Although many financial institutions give the option of investing in pension funds on the stock market, and some will loose money, its consequences should neverthelessbe put into perspective. Since, as economics professor Moesen (2009) puts it, our pension systems seem (so far) more robust than in many other countries, since in Belgium the current active populations pays for the pensions (contrary to other countries where one has to save for his or her own pension). So the legal pensions are pretty safe. Moesen refers to another feature buffering the consequence of the financial crisis: the own house (see already De Decker, 2007; see further). And given the very prudent way of dealing with loans and mortgages (De Decker, 2007), repossession is not an issue. So far, there is no decline in the sales on the housing market (De Tijd, 2008).
We will first start with a basic demographic outline. In this way, we can view in what situationBelgium is in today and what the prognoses are for the years to come. We will then take a closer look to the housing policies and their consequences on tenure structure. Subsequently, we will formulate the different ways housing equity can be released in Belgium. This can also reflect the attitude the Belgium population has towards housing. Next, the Belgian Tax Regime is discussed. With this, one gets a clear image of the tax system in Belgium and possible tax-reductions which can stimulate Belgians to getting a mortgage or building on their pension. Afterwards, we will take a closer look to our welfare system, also our health and elderly care, as more specific the benefits for low-income families and last but not least pensions.
We will end with a discussion on how all those different factors might influence the households decisions in putting their money in housing, to end up with some remarks.
2.Basic demographic trends and framework
Belgium’s population has steadily been increasing since the early eighties. Today’s population is slightly above 10 million, which represents 2,17% of the total European population. Parallel to the European trends, the proportions of the next generation (0-19years)have decreased (although only slightly), while the elderly people (over 65 years of age) have slightly increased (see appendix).
Table 1. Basic demographic data and main indicators
2005 / EU 27 / BelgiumTotal population / 491.023.535 / 10.666.866c
Number of households (*1000) / 192.158 / 4.523,391d
Average household size / 2,56 / 2,31d
Ratio of population of 65 and over / 16,60 / 17,06c
Total fertility / : / 1,14d
Mean age of women at childbearing / :
Life expectancy / 75,4 a b / 79,4e
Life expectancy - males at 65 / 16,4 a / 16,9e
Healthy life expectancy - males at 65 / : / 9,10
Life expectancy - females at 65 / 19,9 a / 20,6e
Healthy life expectancy - females at 65 / : / 9,50
Unemployment rate / 8,90 / 6,9c[i]
Average exit age from labour market / 61,2d / 61,6d
Official exit age from labour market / : / 65
Expenditure on social protection as % of GDP / 27,20 / 29,7
Expenditure on pensions as % of GDP / 12,20 / 11,20
At risk of poverty (total) / 16 / 15
At risk of poverty among those 65 or over / 19 / 21
:=no data available, a=2004, b= EU 12, c=2008, d=2007, e=2006
Source: EUROSTAT
Today’s main characteristics of the Belgian demographic situation are low fertility, decreasing rate of mortality, and increasing pace of ageing and increasing number of partnerships that are not formalized in marriage.The life expectancy is higher than the average in the EU27 and is improving still. Especially the life expectancy of women is higher, as can be observed in other countries too. Because of this there are more women present in the group of 65 years or older.Healthy life expectancy is lower than the life expectancy as could be expected, but compared to other countries, we have a relative high healthy life expectancy, alongside the Netherlands and the UK. If we take both into account then this would indicate that although women live longer, the chance is higher that more years will be spent with bad health. As such, during those last years, they will have to spent more money on doctors and medicines due to their bad health, introducing a great cost for themselves and society.
The problem will lie whether society can keep providing enough money to ensure social protection. We now live longer and the fertility rate is becoming lower, and as such the reported old-age dependency ratio[ii]in 2000 is only just lower than the child-dependency ratio[iii]. The prospect of the United Nations report that the old-age dependency ratio for Belgiumwill increase in 2025 until 38,0% while in 2050 it will even have increased to 51,2%.So chances are high that we will need to anticipate.
The average household size has decreased to 2,31, which is lower than the European average (around 2,53). On the one hand, the number of marriages per year is decreasing since the 1970s (44.813 marriages in 2006, while in 1970 the number of marriages was 73.261). On the other hand, divorces has increased until 2004 (31.405 in 2004; while only 6.403 in 1970), while now are decreasing slowly again (29.189 in 2006), probably due to the fact that less people are choosing to get married. Nowadays, more and more people are choosing for a ‘living together agreement[iv]’ (in 2007 the number was 49.189), but now also more people are ending this ‘living together agreement’ (in 2007 it were 12.137). The average age of men and women who still choose for marriage has increased (for men from 27 years 04 months in 1985 to 35 years 08 months in 2006; for women from 24 years 11 months in 1985 to 32 years 08 months in 2006). There are no known numbers for the ages when people choose for a ‘living together agreement’.
If we only look at the increased average age people choose for marriage, this might also indicate that they postpone childbearing, and as such decrease the fertility rate. Although we do need to keep in mind that nowadays people also choose to have children outside a marriage. The total fertility rate has decreased to 1.14, which is among the lowest levels in Europe. There might be different explanations for this that still needs to be researched further. These explanations can go from more women working on their career rather than bringing up children, to the instability in relationships, over a bad social climate to raise children.
If we focus on migration, we notice that there is more immigration than emigration. Both immigration as emigration keeps increasing over the years. In 1998 the immigration and emigration respectively were 83.812 and 72.087, while in 2007 it was respectively 146.409 and 91.052. So migration still has as a result the growth of the total population of Belgium. In 2008, the Belgian’s population exist approximately of 9,12% of foreign citizens (in total 971.448, where 295.043 live in the Brussels Capital Region, 354.370 in the Flemish Region and 322.035 in the Walloon Region).
If we regard the labor market situation, we notice that in total our unemployment rate (6,9%) is below the European unemployment rate, but when we compare the different regions, we get another picture. Only the Flemish region(3,9%)has a very favorable unemployment rate, while Wallonia (10,0%) and the Brussels Capital region (15,9%) have a higher unemployment rate than the EU27. The activity rate for 15-64 year olds, was 62% in 2007, while for the EU27 it was 65,4%. If we look closer to the different regions, we can find an activity rate for the same population of 54,8%, 57,0% and 66,1% for the Brussels Capital Region, Walloon and Flemish Region respectively in 2007. In 2007, 6,8% of all unemployed have an university degree and 11,7% have a college/higher education degree.
If we focus on the inactive population, we notice that in total 38,6% of the Belgian population are inactive (more specifically, 32,1% of the men and 44,8% of the women), this can be due to retirement, a disability or being a housewife/husband.
In only six years the age in which people actually retire has drastically increased, which is understandable when the statutory pension is taken into account (see pensions). In 2001 the average age was 56,8 (More specifically 57,8 for men, and 55,9 for women). In 2007 the average age was 61,6 (more specifically 61,2 for men, and 61,9 for women). Now in 2009, the official age for retirement was set for both men and women on 65 years[v].
If we focus on the different regions, we see that the average age of retirement is lowest for the Walloon Region (60 in 2006), followed by the Flemish region(61 in 2006) and the highest for the Brussels Capital Region (61,2 in 2006). Although it needs to be highlighted that the average duration of their career is respectively 36,9 years, 39,1 years and 38,3 years (FOD, economics). So, although the Flemish people stop working at an earlier age, they have apparently worked a longer amount of years. Further, it seems that people with a high education tend to quit working on an earlier age (59,3 in 2006)(FOD Economics). If we look at the pension cost, we notice that the state expenditure on pension has decreased from 5,51% in 2001 to 4,006% in 2007 of the GDP (OECD stat).
If we look at the total state expenditure on social protection, we see that this is higher than the EU27 average (29,7% in 2005). The poverty risk on one hand is 15%, which is just on the EU average. On the other hand the poverty risk among those of 65 or older is 21%, which is higher than the EU average.
To conclude, the demographic changes in Belgium show similar patterns to that of other European countries.
3.Housing policies and their consequence on tenure structure
Belgian households possess a huge amount of real estate. In 2001, 70% of the households was owner-occupier. An equivalent of approximately 4 million owner-occupied houses and 600.000 second homes represent an estimated value of approximately 825 billion €. And particularly in Flanders, private households possess 49.118 hectares of building land with an estimated value of 6,3 billion € (all 2006 prices).
Belgium is a nation of homeowners. But unlike many countries that recently became nations of homeowners, Belgium is an old one. In was the 1889 housing law that would mark the start of an ongoing promotion of home ownership and the discouragement of other tenures. This policy was – although with different ratio during the course of time - underpinned by three motives, being (1) the promotion of family live (owning is better than renting for raising children), (2) to discipline the workers and (3) the support of the construction industry.
This pro-ownership policy was supported by both the conservative Liberal Party (from an ideological point of view) and the powerful Catholic/Christian Party (combining the ideological strand with anti-socialism). In the long run, it was only the Socialist Party that stood for the promotion of alternative tenures and interventions in private renting, be it with little success, since social housing today has a market share that, dependent on the region, does not exceed 8%, and the private rental market remained largely unregulated[vi]. Although they defended ‘pro-rental’ housing policies, including an increase of social rental dwellings and a regulation of private renting, the socialists never contested (the promotion of) home-ownership. Moreover, the Flemish socialists[vii]have recently become firm advocates of home-ownership and link it, just like the Christian Democrats ( to pensions.
Despite these statements, specific policies so far rarely link home-ownership to social security. They are predominantly aimed at increasing the level of home-owners through a range of subsidy schemes and at keeping low-income owners in the system. The latter occurs through an insurance[viii]which pays part of the mortgage in case of unemployment. Furthermore, ‘conservative’ mortgage legislation –e.g. reversed mortgagesare illegal and limits interest increases/decreases in the case of variable interest rates – prohibits the introduction of ‘exotic mortgage products’, with the consequence that there is much less speculation on house prices than in some other European countries and that mortgages are not used to back up consumption like elsewhere (see e.g. Elsinga, et al. 2007).
This prudent attitude does not imply an unawareness of the part of the government on the huge wealth stocked in housing. On the contrary, but if the government stimulates the use of this wealth, so far this has been limited to encouraging home-ownership among next of kin. Some years ago the federal government drastically lowered taxes on the donation of real estate to descendents. And more recently the Flemish government agreed to introduce a so-called ‘mom-and-dad’-loan, allowing the donators an extra tax exemption when financing the purchase and renovation of a house by children or other relatives or acquaintances. In this context, it furthermore has to be stressed that this is basically nothing more than rewarding a practice that has been firmly in place for a long time, as shown in table 2. Donation finance on average 13.8% of a house purchase and 4.4.% is a loan from family members (see also Doms, et al. 2001; Gedas, et al. 2001; De Decker 2005; Heylen, et al. 2007).
Table 2. The financing of the purchase of the construction of an own house, Flanders, 1995-2005
Estimated average investment in € / shareOwn means
-all
-partly
Mortgage(s)
-all
-partly
Donations
-all
-partly
Loan family
-all
-parlty
Governemnt grants
-all
-partly
other means
-all
-partly / 89,902
181,717
72,857
101,751
115,823
97,823
41,919
-
41,386
33,125
-
33,356
3,843
-
3,842
-
-
- / 71.3
11.3
60.1
84.1
18,6
65.5
13,8
0.1
13.7
4.4
0.1
4.3
11.2
0.2
11.0
6.7
0.3
6.4
Total / 166,143 / -
. Source: Heylen et al (2007)
To summarise, in this section we have established that political parties are indeed thinking of home-ownership as a form of financial security which could be called upon in old age. However, so far there is no evidence that policy-makers are actively seeking to free the capital stocked in housing. Policy changes in the domain of housing have been mainly limited to making it easier – at least in theory and discourse –to purchase their own house.
4.Public policies related to alternative solutions and institutions for the release of housing equity
Firstwayof getting financial gain of owning a house can be reached by renting it in part or in whole. Renting is a source of tax free earnings and as such is seen as lucrative[ix]. Although, the cost for renovation and refurbishment remain.The government is becoming more and stricter on the minimum housing standards of rental dwellings which persuades nowadays the landlord to do the necessary restorations. On the other hand the government is also given a lot of financial gains for renovation or refurbishment, which makes it worth and not so expensive to restore your old house.
Another way to access equity is moving down. One sells his home, and buys a smaller home and in this way still keep a roof above their heads, and as a bonus have more money to ensure the upkeep of their quality of life. Also, in the same line of thought, one cal sell their home and with that money go rent a house or apartment until there is no more money. In that case, they can apply for social services and try to get a cheaper dwelling.
A third way is selling on life annuity. There are different variations, I will report the two most common variations. First we have the possibility where the owner renounces the whole estate on condition that the buyer pays a monthly (or periodical) fee until the seller dies. In this way, the seller ensures a surplus on his pension.Second, the owner enjoys the usufruct[x] of the property, while at the same time keeps getting a monthly (or periodical) payment Until (s)he dies. Sometimes the life annuity entails that the payments need to be made until both the owner and the partner dies, which is much ‘riskier’ for the buyer who have the chance of having to pay much more than the house is worth. There are ways of limiting the disadvantage of this kind of deal for example by putting in a maximum duration; making indexation of the life annuity cost possible; paying a part in cash, the other part in monthly/periodical payments. Life annuity is in this way the perfect way if one has no children to ensure an extra (taxfree[xi]) pension and at the same time still keeps the pleasure of their own home. Many people do find this way of buying a house a bit grim, seeing the buyer has to ‘hope’ that the seller dies soon.