Rental income and household risk sharing

This paper examines for the first time the role of real estate assets as a channel of income smoothing. Using data from the Household Finance and Consumption Survey (HFCS) for France, Germany, Italy, and Spain over 2014–2021, we employ income risk sharing models to isolate the contribution of rental income, net of mortgage interest and maintenance, in smoothing idiosyncratic shocks to households’ labour and pension income. We find that rental income absorbs, on average, around 3% of idiosyncratic shocks. The effect is strongest at the top of the income distribution but remains economically significant for middle-income groups. This channel also provides meaningful buffering for highly indebted households, while is largely ineffective for those facing severe liquidity constraints. The degree of income smoothing is remarkably similar for landlords who have inherited real estate assets and for landlords who entered the market as first-time buyers, although inheritance plays a particularly significant role among younger households. Finally, rental income complements rather than substitutes for financial income smoothing. These results highlight a key demand-side factor driving multiple property ownership (MPO) and suggest that rental income can motivate households to adopt asset-based welfare strategies, offering a safety net against unforeseen shocks. • Rental income from real estate represents a distinct and economically meaningful channel of income smoothing for European households, absorbing around 3% of idiosyncratic labour and pension income shocks in France, Germany, Italy, and Spain. • The insurance role of rental income is strongest at the top of the income distribution but remains significant for middle-income households, indicating that its stabilising function is not confined to the wealthiest. • Rental income provides meaningful buffering for highly indebted households, while it is largely ineffective for households facing severe liquidity constraints. • The income-smoothing properties of rental income are remarkably similar for inherited and noninherited landlords, although inheritance plays a key role in enabling younger households to access this channel earlier in the life course. • Rental income complements, rather than substitutes, financial income smoothing, contributing to household risk sharing within a broader portfolio-based insurance framework.