Panel Paper: Analyzing Households' Decisions to Invest in Home Maintenance and Improvements with AHS Data

Friday, November 7, 2014 : 2:10 PM
Sandia (Convention Center)

*Names in bold indicate Presenter

Katrin B. Anacker, George Mason University and Yanmei Li, Florida Atlantic University
This study identifies how losses in the home value estimated by the homeowner are affecting households' decisions to invest in home maintenance and improvements. In the United States, house prices are now 30 percent lower, on average, than they were at the peak of the market. In some markets, prices have declined by more than 50 percent. The household wealth losses are staggering, amounting to an estimated $7 trillion (Ellen and Dastrup 2011; Raskin 2012). This dramatic decline in housing wealth may have a ripple effect throughout the economy, as households adjust their housing decisions in response.

Remodeling decisions by homeowners are an important factor in the evolution of housing supply in the United States, playing a significant role in determining the evolution of house prices. To the authors’ knowledge, not many recent studies have analyzed the connection between investment decisions in home maintenance and improvements and house prices (Leventis, 2007; Downing and Wallace, 2001; Plaut and Plaut, 2010; Fisher and Williams, 2011).

Our paper spans the housing boom and bust in the U.S., based on bi-annual national American Housing Survey data sets from 2001 (at the beginning of the national house price bubble), over 2005 (just before the national house price bubble peaked), over 2007 (just after the national house price bubble crashed) to 2011 (when the national house price crash might have hit bottom).

We ask the following research questions:

1. How has inflation-adjusted home value estimated by the homeowner changed from 2001 to 2011?

2. How have inflation-adjusted investments in home maintenance and improvements changed from 2001 to 2011?

3. What factors affect inflation-adjusted investments in home maintenance and improvements from 2001 to 2011?

Very preliminary results indicate that factors affecting remodeling investments vary by the change in housing value and the estimated return (if the unit were remodeled). The effect also varies geographically. Results will be refined and discussed in the public policy context.

Full Paper: