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Housing Price Volatility and Downsizing in Later Life

  • James Banks
  • Richard Blundell
  • Zoë Oldfield
  • James P. Smith

In this paper, we modeled several types of housing transitions of the elderly in two countries -- Britain and the United States. One important form of these transitions involves downsizing of housing consumption, the importance of which among older households is still debated. This downsizing takes multiple forms, including reductions in the number of rooms per dwelling and the value of the home. There is also evidence that this downsizing is greater when house price volatility is greater and that American households try to escape housing price volatility by moving to places that are experience significantly less housing price volatility. Our comparative evidence in suggests that there is less evidence of downsizing in Britain. Our results indicate that housing consumption appears to decline with age in the US, even after controlling for the other demographic and work transitions associated with age that would normally produce such a decline. No such fall in housing consumption is found in Britain, largely because British households are much more likely to stay in their original residence.

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File URL: http://www.nber.org/papers/w13496.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13496.

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Date of creation: Oct 2007
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Publication status: published as Housing Price Volatility and Downsizing in Later Life , James Banks, Richard Blundell, Zoë Oldfield, James P. Smith. in Research Findings in the Economics of Aging , Wise. 2010
Handle: RePEc:nbr:nberwo:13496
Note: AG
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  1. Engelhardt, Gary V., 1996. "House prices and home owner saving behavior," Regional Science and Urban Economics, Elsevier, vol. 26(3-4), pages 313-336, June.
  2. Ortalo-Magné, François & Rady, Sven, 2005. "Housing Market Dynamics: On the Contribution of Income Shocks and Credit Constraint," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 50, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  3. John Y. Campbell & João F. Cocco, 2005. "How Do House Prices Affect Consumption? Evidence From Micro Data," NBER Working Papers 11534, National Bureau of Economic Research, Inc.
  4. Todd Sinai & Nicholas S. Souleles, 2005. "Owner-Occupied Housing as a Hedge Against Rent Risk," The Quarterly Journal of Economics, MIT Press, vol. 120(2), pages 763-789, May.
  5. James Banks & Richard Blundell & James P. Smith, 2001. "Financial Wealth Inequality in the United States and Great Britain," Working Papers 01-01, RAND Corporation Publications Department.
  6. Steven F. Venti & David A. Wise, 2001. "Aging and Housing Equity: Another Look," NBER Working Papers 8608, National Bureau of Economic Research, Inc.
  7. Joao F. Cocco, 2005. "Portfolio Choice in the Presence of Housing," Review of Financial Studies, Society for Financial Studies, vol. 18(2), pages 535-567.
  8. Ortalo-Magne, Francois & Rady, Sven, 2002. "Tenure choice and the riskiness of non-housing consumption," Journal of Housing Economics, Elsevier, vol. 11(3), pages 266-279, September.
  9. James Banks & Richard Blundell & James P. Smith, 2000. "Wealth inequality in the United States and Great Britain," IFS Working Papers W00/20, Institute for Fiscal Studies.
  10. Louise Sheiner & David N. Weil, 1992. "The Housing Wealth of the Aged," NBER Working Papers 4115, National Bureau of Economic Research, Inc.
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