Residential Mobility: Wealth, Demographic and Housing Market Effects

Ermisch, J. and Washbrook, E. (2012) Residential Mobility: Wealth, Demographic and Housing Market Effects. Scottish Journal of Political Economy, 59(5): 483-499. doi: 10.1111/j.1467-9485.2012.00591.x

Abstract

The study presents a very simple model in which housing equity can influence mobility, and then estimates parameters that gauge the impact of housing equity, local house prices and other variables associated with household structure and change on residential movement within the UK. The data come from the British Household Panel Study over 1992–2008, which allow us to use within-person variation to identify the parameters. The parameter estimates indicate that estimates based on cross-section variation are seriously biased in our analysis. We check the robustness of our results to errors in measuring equity using an instrumental variable estimator. Our main finding is that an increase in a household's housing equity encourages residential mobility substantially, and a decline discourages it.

Further details

This study focuses on the residential mobility of a particular group - home-owners aged under 45 – who are at the key stage of the life course for family formation. Moves among this group are likely to be motivated by the desire to ‘upgrade’ housing in terms of space for additional children or quality of neighbourhood and, indeed, 87% of moves in our sample were transitions to more expensive properties. Our interest is in whether, as has often been argued, having small amounts of equity in one’s home reduces the ability to realize a desired move. Low equity hampers the ability to provide the down payment on a higher quality home and necessitates higher mortgage payments that substitute for consumption of other goods and services. Our aim is to contrast the effects of household wealth (measured by housing equity) with other influences on mobility including age and number of children and partnership status, using a method that addresses shortcomings in previous work.

We use data from the BHPS matched to area-level data on the housing market obtained from the Land Registry. We allow the probability that a move takes place in a 12-month period to depend on observed characteristics of the household at the start of that period and also on the household’s unobserved propensity to move that is constant over time. We begin with a random effects model that assumes unobserved mobility propensities are not associated with observed characteristics such as housing equity and household composition. We then test and relax this assumption via a fixed effects specification. We find evidence that those with low equity ratios tend to have unusually high mobility propensities, and this correlation leads to a strong downward bias in the random effects estimates. We find that indeed low equity leads strongly to reduced mobility and that this result is disguised in previous studies that did not exploit fixed effects. Further analysis suggests that reliance on households’ own valuations of their equity also leads to underestimates of the positive effect of equity on mobility. A correction for measurement error in this variable leads to even larger estimates of the effects.

Not all characteristics appear to suffer from the problem that they are correlated with unobserved mobility propensities. Estimates of the negative effects of age and being in a couple are similar in the two models, as are the negligible effects of the level of, and recent changes in, household income. Of particular interest are the effects of number and age of children, given the focus of the grant. The results suggest that households with children aged under 12 tend to have quite high fixed mobility propensities. Only when these tendencies are controlled does a negative effect of children on mobility emerge, although it only reaches significance when children enter school. A household member (such as an adult child) leaving the family home is also strongly associated with reduced mobility, and more so when the higher unobserved mobility propensities of these households are adjusted.

Overall the results suggest that mobility is higher at younger ages, before individuals form partnerships and begin childrearing. The ability of households to realise their moving desires is inhibited by low equity in their current homes, so the impact is likely greatest for those wishing to start a family and move into long-term ‘stable’ housing.