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Using home maintenance and repairs to smooth variable earnings

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  • Joseph Gyourko
  • Joseph Tracy

Abstract

Recent research indicates that the marked increase in U.S. income inequality over the last twenty-five years has not been matched by a similar increase in consumption inequality. This paper examines the role of saving/dissaving in a house as a vehicle for consumption smoothing. Data from the American Housing Survey show that expenditures on home maintenance and repairs are economically significant, amounting to roughly $1,750 per household each year. This figure is comparable to the labor literature estimates that put households' average annual transitory income variance at about $2,200. Our calculations show a significant elasticity of maintenance and repair expenditures to transitory income shocks. The elasticities are higher for less well educated households, which are more likely to be liquidity constrained than their better educated counterparts.

Suggested Citation

  • Joseph Gyourko & Joseph Tracy, 2003. "Using home maintenance and repairs to smooth variable earnings," Staff Reports 168, Federal Reserve Bank of New York.
  • Handle: RePEc:fip:fednsr:168
    Note: For a published version of this report, see Joseph Tracy and Joseph Gyourko, "Using Home Maintenance and Repairs to Smooth Variable Earnings," Review of Economics and Statistics 88, no. 4 (November 2006): 736-47.
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    Cited by:

    1. Collins, J. Michael & Hembre, Erik & Urban, Carly, 2020. "Exploring the rise of mortgage borrowing among older Americans," Regional Science and Urban Economics, Elsevier, vol. 83(C).
    2. Todd Sinai & Nicholas S. Souleles, 2005. "Owner-Occupied Housing as a Hedge Against Rent Risk," The Quarterly Journal of Economics, Oxford University Press, vol. 120(2), pages 763-789.
    3. Wenli Li & Rui Yao, 2007. "The Life-Cycle Effects of House Price Changes," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(6), pages 1375-1409, September.
    4. Edward L. Glaeser & Joseph Gyourko, 2007. "Arbitrage in Housing Markets," NBER Working Papers 13704, National Bureau of Economic Research, Inc.
    5. Manuel Hernandez & Danilo Trupkin, . "Asset maintenance as hidden investment among the poor and rich: Application to housing," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics.
    6. Wen-Chieh Wu & Yu-Chun Ma & Steven C. Bourassa, 2018. "Folk Customs and Home Improvement Decisions," International Real Estate Review, Global Social Science Institute, vol. 21(3), pages 317-341.
    7. Gyourko, Joseph & Saiz, Albert, 2004. "Reinvestment in the housing stock: the role of construction costs and the supply side," Journal of Urban Economics, Elsevier, vol. 55(2), pages 238-256, March.
    8. Khorunzhina, Natalia, 2018. "Intratemporal Nonseparability between Housing and Nondurable Consumption: Evidence from Reinvestment in Housing Stock," MPRA Paper 93920, University Library of Munich, Germany, revised 14 May 2019.
    9. Stephen H. Shore & Todd Sinai, 2010. "Commitment, Risk, and Consumption: Do Birds of a Feather Have Bigger Nests?," The Review of Economics and Statistics, MIT Press, vol. 92(2), pages 408-424, May.
    10. Chan, Sewin & Haughwout, Andrew & Tracy, Joseph, 2015. "How Mortgage Finance Affects the Urban Landscape," Handbook of Regional and Urban Economics, in: Gilles Duranton & J. V. Henderson & William C. Strange (ed.),Handbook of Regional and Urban Economics, edition 1, volume 5, chapter 0, pages 987-1045, Elsevier.
    11. Olga Gorbachev, 2011. "Did Household Consumption Become More Volatile?," American Economic Review, American Economic Association, vol. 101(5), pages 2248-2270, August.
    12. Joseph Gyourko & Albert Saiz, 2003. "Urban decline and housing reinvestment: the role of construction costs and the supply side," Working Papers 03-9, Federal Reserve Bank of Philadelphia.
    13. Wenli Li & Rui Yao, 2007. "The Life‐Cycle Effects of House Price Changes," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(6), pages 1375-1409, September.
    14. Khorunzhina, Natalia, 2018. "Intratemporal Substitution between Housing and Nondurable Consumption: Evidence from Reinvestment in Housing Stock," MPRA Paper 88667, University Library of Munich, Germany.
    15. Søren Leth-Petersen, 2010. "Intertemporal Consumption and Credit Constraints: Does Total Expenditure Respond to an Exogenous Shock to Credit?," American Economic Review, American Economic Association, vol. 100(3), pages 1080-1103, June.
    16. Morris A. Davis & Robert F. Martin, 2005. "Housing, house prices, and the equity premium puzzle," Finance and Economics Discussion Series 2005-13, Board of Governors of the Federal Reserve System (U.S.).
    17. Andrew F. Haughwout & Sarah Sutherland & Joseph Tracy, 2013. "Negative equity and housing investment," Staff Reports 636, Federal Reserve Bank of New York.

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    More about this item

    Keywords

    Saving and investment; Income distribution; elasticity; Households; Consumption inequality; household education;

    JEL classification:

    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis

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