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Housing and the Life Cycle

Paper Session

Saturday, Jan. 4, 2020 2:30 PM - 4:30 PM (PDT)

Manchester Grand Hyatt, Nautical
Hosted By: American Real Estate and Urban Economics Association
  • Chair: Mike Eriksen, University of Cincinnati

Do Elderly Individuals Delay Claiming Social Security and Cash-out Home Equity When House Prices Appreciate?

Jing Li
,
Singapore Management University
Naqun Huang
,
Nanjing Audit University
Amanda Ross
,
University of Alabama

Abstract

This paper examines the extent to which changes in house prices affect when eligible individuals start receiving Social Security retirement income. When a household starts to receive Social Security is important because the timing of the claiming decision affects the monthly benefits. We argue in a conceptual setting that, if house prices increase, financially constrained households may draw upon the additional home equity to finance expenses and delay receipt of Social Security to receive the larger monthly benefits. Since changes in house prices and the claiming of Social Security are likely to be correlated with unobserved local demand shocks, we employ an instrumental variables strategy. Our instrument for the change in house prices is the land supply elasticity of an MSA interacted with changes in the national house price index. Using restricted data from the Health and Retirement Survey, we find that the elderly delay Social Security claiming when house prices increase during a boom period, but not during a bust. Our findings also suggest that financially constrained households are more likely to delay claiming Social Security if house prices appreciate and they do so by remaining in their current residences but increasing the amount of their home loans.

When Education Policy and Housing Policy Interact: Can We Correct for the Externalities?

Charles Ka Yui Leung
,
City University Of Hong Kong
Yifan Gong
,
University of Western Ontario

Abstract

A simple spatial equilibrium model with the peer group effect and local public finance can match several stylized facts of the labor market and housing market in the United States. Our counter-factual policy analyses generate further insights. First, the welfare of households can change as the government varies the location of public housing units with a neighborhood. Second, even though the public housing policy and housing voucher program deliver similar results at the household level, they are different as the former tends to benefit the offspring more, while the latter is the reverse. Third, combining school finance consolidation policy with public housing policy can lead to a Pareto improvement. Unfortunately, a policy that can benefit all agents, in the long run, may not be implemented as it can hurt some agents in the short run.

Bequest Motives, Inheritance Tax, and Housing Choice: A Problem of Inefficient Empty Nests

Jiro Yoshida
,
Pennsylvania State University
Miki Seko
,
Musashino University
Kazuto Sumita
,
Toyo University

Abstract

The housing stock is underutilized in empty nests, which can be caused by the low mobility of elderly households and early renovations for their heirs. This study sheds light on the cause of inefficient empty nests by focusing on a bequest motive and inheritance tax. Japanese household panel data show that empty nests are more pronounced for elderly, non-moving, and renovating households. The motive to bequeath housing makes moving less likely but capacity-increasing renovations more likely. The motive to bequeath housing is influenced by the inheritance-tax benefit of housing in addition to income, wealth, and better housing structures. Thus, the inheritance-tax benefit of housing exacerbates a long-term empty nest problem by distorting housing choices.

Housing Wealth, Bequests, and the Elderly

Nadia Greenhalgh-Stanley
,
Kent State University
Lockwood Reynolds
,
Kent State University

Abstract

There has been little consensus on why individuals do not spend down their wealth by death. Competing theories debate whether assets are bequeathed intentionally or are unplanned. Combining data on expectations of future bequests in the Health and Retirement Study with changes in housing wealth during the housing boom, we aim to estimate whether an exogenous wealth shock changes expected bequests. We find exogenous wealth shocks lead to an increase in planned bequests. However, we do not find complete pass through of the wealth increase, and find larger responses for individuals with lower baseline wealth, health and risk aversion.
Discussant(s)
Sita Slavov
,
George Mason University
Alvin Murphy
,
Arizona State University
Anil Kumar
,
Federal Reserve Bank of Dallas
Sewin Chan
,
New York University
JEL Classifications
  • R2 - Household Analysis
  • D1 - Household Behavior and Family Economics