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GGR 357 H1F Geography of Housing and Housing Policy

May 21, 2008 SESSION 3

INTERGENERATIONAL TRANSMISSION OF HOMEOWNERSHIP

2 Announcements

 Course website: http://individual.utoronto.ca/helderman/    Text: some copies left After this week available still at the Centre for Urban and Community Studies – – 455 Spadina By appointment with Grace Ramirez: 416-978-0808 Other bookstores have it, but not at a reduced price  Final drop date (without a penalty): June 8, 2008

3 Introduction

     What is intergenerational transmission?

How does the topic fit in with this course?

Which are the mechanisms that feed the process?

What are the possible implications of intergenerational transmission of housing tenure for the housing market?

Future and policy relevance

4 Intergenerational transmission

 The similarity of housing tenure between generations of the same family Grown up in owner-occupied home Grown up in rented home Younger generation = homeowner 63% 26%

5 Intergenerational transmission and social inequality

     Owner-occupied homes generally of better quality and larger Situated in more salubrious neighbourhoods Better opportunities for building up capital assets Parental homeownership influences the younger generation’s housing tenure Intergenerational transmission reproduces social inequality

Parental homeownership 6

 Housing and positive child outcomes – Education, income – Spurious relationship through socio-economic status?

 Children’s well-being/ health – – – – – – Affordability Housing quality Tenure and stability Neighbourhood and community Age, poor maintenance, faulty design, air quality, mould growth, lead paint, corroded pipes, damp walls and ceilings Overcrowding

7 Relevance for the course

    Provides additional explanation of socio-economic inequality between owners and renters Provides additional explanation of price fluctuations on the housing market Provides additional explanation of how demographic characteristics and individual circumstances and preferences are reproduced to create a certain demand for housing Stresses the relevance of (local) housing stock and housing market circumstances

8 General understanding for intergenerational transmission of housing tenure

  Micro-scale – Personal characteristics – – Personal circumstances Personal preferences Macro-scale – – Local housing supply - availability Local housing demand - availability – – Neighbourhood dynamics Attainability - through socio-economic gaps owners and renters

Conceptual Scheme

Personal characteristics and circumstances

Micro level: resources and rest rictions

Parents’ housing tenure Younger generations’ housing tenure

9

Housing and neighbourhood quality Socio-economic gaps between renters and owners Housing market circumstances (supply) Exacerbation of social inequality (demand)

Macro level: opportunities and constraints

10 Mechanisms

       Gift giving Bequests/ inheritance Transmission of personal characteristics Socialization Local housing market stock Housing market circumstances Similarities in housing market circumstances between generations of the same family

Gift giving 11

       Money transferred, sometimes earmarked, at least $5000 or euros Direct and deliberate action Older homeowners have equity from home and sometimes self-employment Influences transition to homeownership Important when house prices are high Occurrence 22.3% in The Netherlands 21% in the USA  Access to social networks, job opportunities, and education: not often regarded

12 Gift giving and strategizing parents

   Avoid property tax Avoid taxation of future inheritance Affect children’s housing situation, location (see altruism vs. exchange later on)

13 Economic approach to gift giving

Gifts influences:  Timing of a purchase (Loan possible sooner)   Quality of the home (Larger, better home within reach) Mortgage duration (Larger down payments) – – Positive correlation between house price increases and gifts: are marginal households crowded out?

Gifts are targeted to constrained households showing merit  Regards not only the giver but also the receiver

14 Sociological approach to gift giving

       Focus on motives of the giver (parent) Motive influences timing and magnitude of the gift Altruism (dynastic) versus exchange (non-dynastic) Gifts targeted to households showing merit Merit: favourable job position, having children Exchange motive: is gift still a transfer or an investment in self?

Altruistic but still non-dynastic: care about future generation, not utility for future gen. (e.g. pay for college education, not consumption goods)

15 Gift giving (timing issue)

Offer of home on the market?

Parental gift Homeownership younger generation Interest to buy?

May influence timing of gift or even occurrence of gift…

16 Gift giving and inequality

    Owning parents have equity/wealth from their home so that they can afford to give to their adult children more easily than renters Equity consumption (for own purposes) is rare Older owners often have low housing costs that go down For older renters, housing costs continue to rise (Kendig, 1984)

17 Bequests/ inheritance

   Role inheritances very minor Most inheritances occur when the younger generation is over 40. Homeownership already attained Measured together with gifts sometimes

18 Transmission of personal characteristics

     Socio-economic status Level of education Self-employment Ability to accumulate capital Earnings capacity

19 Socialization

    Children base expectations concerning living standards on their parents’ home situation (Henretta, 1984) Expectations, attitudes, aspirations are molded when adolescents in parental home Homeownership as a ‘natural goal’ for children of homeowners?

People strive to reach at least the socio-economic status of their parents (Easterlin, 1980)

20 Socialization (2)

  Parents praise homeownership as a life goal Parents show children how to obtain a mortgage

21 Socialization (3)

 Passive socialization Through expectations of younger generation  Active socialization Through active encouragement by parents

22 Socialization and measurements

   Complex nature, hard to measure Often referred to but never properly measured Assumed to have a significant effect on the younger generation’s housing tenure outcome

23 Data issue

 With gift giving and socialization, often only one set of parents is regarded

24 Local housing market stock

 Opportunity structure – – – Percentage owner-occupied homes High prices Turnover rate: percentage of homes that change occupiers/period

25 Similarities in housing market circumstances between generations of the same family

     Distance between family members Same housing market circumstances?

Living closer to home owning parents Living closer to renting parents Scale of country

26 Distance to parents in the Netherlands

   Half live within 10 km of their parents’ residence Average: 28 km Range: 0-279 km

27 Similarities in housing tenure by housing market circumstances

Percentage homeownership among the younger generations Parents own Parents rent Within 10 km Over 10 km 79.1% 67.5% 60.2% 67%

28 Distance to parents seems to matter

    Uniqueness of the Netherlands situation Limited scale of the country Less variety in price levels/ markets: locations matter less?

Interesting: deliberate (gifts) versus coincidental (housing market circumstances)

29 Personal characteristics

    Age (life course stage indicator) Gender (income expectations) Income (high out of pocket expenses in first few years of homeownership) Level of education (income expectations)

30 Personal characteristics (2)

 Stable households (long term commitment, larger houses that are more suitable for families and option of pooling resources)

31 Implications

 Gift giving is one of the most important mechanisms of intergenerational transmission of homeownership  If gift giving mechanisms become more important due to limited availability for rented homes and rising prices of owner-occupied homes the greater capacity of the better off may drive up house prices even more

32 Future and policy relevance

       Reliability on the owner-occupied segment may make parental gifts more important.

Parental gifts as a temporary solution to make housing more affordable to (some) starters BUT: parental gift giving creates social inequality Parental gifts may drive up house prices Vast majority still accumulate down payments from their own savings, and pooled resources But will this last…?

Attention for the (affordable) rented segment is necessary

33 Future and policy relevance

   Developing homes takes a lot of time Temporary means: subsidies for entering the owner occupied segment for families that can not afford parental assistance? Can only help a few households!

(Especially with current government budgets) Development of affordable rented homes still necessary…

34 Literature session 3 (today’s session)

 Henretta, J.C. (1984), Parental status and child’s home ownership. American Sociological Review 49, pp. 131 140.

 Jenkins, S.P. & A.K. Maynard (1983), Intergenerational continuities in housing. Urban Studies 20, pp. pp. 431 438.

 Helderman, A.C. & C. Mulder (2007), Intergenerational transmission of homeownership: the roles of gifts and continuities in housing market characteristics. Urban Studies 44 (2) pp. 231-247.

35 Jenkins & Maynard, 1983

     Still not much literature available on the relation between parents’ and children’s housing tenure Exacerbating socio-economic differences Long-term view necessary for policy analysts Increasing understanding underlying factors of housing status Children of 1950 owners had about 2.4 times the chance of themselves being owners rather than non owners relative to children of 1950 non-owners

36 Jenkins & Maynard, 1983

“An observed intergenerational continuity in tenure may be spurious to the extent that it simply reflects the degree to which earnings capacity is transmitted from parents to children”

37 Jenkins & Maynard, 1983

   National representativeness Causation: direct/ intervening variables/ spurious correlation because housing status is correlated with earnings capacity?  future research!

No control for opportunity structure!

38 Henretta, 1984

 Intergenerational transmission of homeownership promotes the continuation of inequality from generation to generation: Homeownership is the major source of wealth accumulation   Material aid (bequests, transfers including education and social networks) Socialization: attitudes, preferences, or ways of acting, style of dress/ speech, aspirations, expectations (transmission of status)

39 Henretta, 1984

    Home value more important than parental homeownership, but does not measure direct aid  Seems to be through mortgage level Parental income is important, as is parental gifts (no measurement for income children) Together this seems to reflect an importance of socialization

40 Henretta, 1984

“As with education, purchase of a home requires relatively large expenditures of money before the young person has very high earnings, and therefore direct parental aid may be important”

Henretta, 1984 41

       Multivariate (logistic) regression analysis: able to control for many variables relating to personal circumstances and mechanisms Theoretical basis for mechanisms of transmisson of homeownership City size controlled for (proxy for concept opportunity structure), but not for period of observation Ethnicity  culture/ limited opportunity structure/ discrimination? Not convincing, but mechanisms may work differently Large data sets: (national) representativeness No direct measurement of socialization: tentative!

Literature session 4 (next Monday) 42

 Bryant, T. (2005), Housing as a social determinant of health. In: J.D. Hulchanski & M. Shapcott (eds. 2005), Finding room. Policy options for a Canadian rental housing strategy. p. 159-166.

 Murdie, R. (2005), Housing affordability: immigrant and refugee experiences. In: J.D. Hulchanski & M. Shapcott (eds. 2005), Finding room. Policy options for a Canadian rental housing strategy. p. 147-158.

 Novac, S., J. Darden, D. Hulchanski & A. Seguin (2005), Housing discrimination in Canada: stakeholders views and research gaps. In: J.D. Hulchanski & M. Shapcott (eds. 2005), Finding room. Policy options for a Canadian rental housing strategy. p. 135-146.