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GGR 357 H1F

Geography of Housing and Housing Policy 

May 21, 2008SESSION 3

INTERGENERATIONAL TRANSMISSION OF HOMEOWNERSHIP

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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

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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

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Intergenerational transmission

The similarity of housing tenure between generations of the same family

Younger generation = homeowner

Grown up in owner-occupied home 63%

Grown up in rented home 26%

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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

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Parental homeownership

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

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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

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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

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Conceptual Scheme

Parents’ housing tenure Younger generations’ housing tenure

Exacerbation of social inequality

(demand)

Socio-economic gaps between renters and

owners

Housing and neighbourhood

quality

Housing market circumstances

(supply)

Personal characteristics and circumstances

Macro level: opportunities and constraints

Micro level: resources and restrictions

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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

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Gift giving

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

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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)

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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

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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)

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Gift giving (timing issue)

Parental gift Homeownership younger generation

Offer of home on the market?

Interest to buy? May influence

timing of gift or even occurrence of

gift…

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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)

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Bequests/ inheritance

Role inheritances very minor Most inheritances occur when the younger generation

is over 40. Homeownership already attained Measured together with gifts sometimes

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Transmission of personal characteristics

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

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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)

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Socialization (2)

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

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Socialization (3)

Passive socializationThrough expectations of younger generation

Active socializationThrough active encouragement by parents

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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

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Data issue

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

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Local housing market stock

Opportunity structure

– Percentage owner-occupied homes– High prices– Turnover rate: percentage of homes that change

occupiers/period

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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

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Distance to parents in the Netherlands

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

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Similarities in housing tenure by housing market circumstances

Parents own Parents rent

Within 10 km 79.1% 60.2%

Over 10 km 67.5% 67%

Percentage homeownership among the younger generations

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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)

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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)

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Personal characteristics (2)

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

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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

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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

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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…

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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.

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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

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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”

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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!

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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)

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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

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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”

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Henretta, 1984

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!

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Literature session 4 (next Monday)

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.