A Qualitative Comparative Approach to the Role of Housing Equity in the Life Cycle

The economic life-cycle model assumes that households spread their income as well as possible over the life cycle (Deaton, 1992). They accumulate wealth throughout the life cycle and decumulate in old age. To date, however, results have shown that households tend to treat housing wealth different from other types of wealth. How can this be explained? Are people poorly informed, do they face practical restrictions or might they have other rationalities? This contribution demonstrates that choice that may seem irrational in the perspective of the life-cycle theory, appear rather rational when you take into account the formal and informal institutions in a country. To unravel the role of formal and informal institutions in people's choices, comparative qualitative research is of great value. The basic life-cycle model is a typical example of a universalistic model, which assumes that the rational foresighted consumer will distribute income and expenditures smoothly over the life cycle, regardless of institutional context. This approach facilitates the comparison of countries, as it is the rational agent that matters and rational agents are the same in all countries. In this contribution the life-cycle model (LCM) theory is taken as a case study to explain how qualitative comparative research can contribute to explaining why people do not act as this theory expects and why they behave as they do. We assume that contexts matter for households. Fiscal policies, housing policies and welfare-state arrangements (formal institutions) influence consumer behaviour, as do values, norms (informal institutions), in other words rationality is bounded by institutions (Hantrais, 2009; Kato, 1996). This contribution focuses on the role of institutions in this debate, drawing upon an example of a comparative housing study. The results demonstrate that comparative qualitative housing research helps to explain why households do not act according to the life cycle in the case of housing equity.