Home Ownership and Social Mobility Jo Blanden School of Economics, University of Surrey
with Stephen Machin, London School of Economics
15th June 2017
Wednesday, 14 June 2017
1
Context 1 Discussion of problems of low social mobility in Britain are commonplace. The issue has magnified in several ways more recently: 1). The documented fall in intergenerational income mobility in economic status that earlier research has highlighted. 2). Irrespective of relative mobility patterns, the potential for no absolute mobility gains as real wages and living standards are squeezed. 3). The implications that 2) has had for wealth mobility across the generations.
Context 2 We study all three of these in this paper, with a particular focus on changing patterns of home ownership. We look at:
1). Cross-time shifts in the age structure of home ownership. 2). Intergenerational correlations in home ownership. 3). How these fit into debates about movements in intergenerational mobility through time. 4). Making a start (given relatively big UK data shortcomings) on exploring intergenerational wealth correlations.
Structure 1). Cross Cohort Changes in Home Ownership
2). Intergenerational Patterns of Home Ownership 3). The Importance of Parental Home Ownership for the Cross Cohort Changes 4). Implications for Falling Intergenerational Mobility 5). Intergenerational Transmissions of Wealth 6). Conclusions
Cross Cohort Changes in Home Ownership 1 Percent owner occupiers by age group and year 81 78 77
80
Percent Owner Occupier
74
76
79 71
70 66
64 59
60 50
40
77
70 69
70
50
76
47
45 35
30 20
20 10 0 20-29
30-39
40-49
50-59
60-69
Age Groups 1993
2000
2007
Source: Survey of English Housing/English Housing Survey
2013
Cross Cohort Changes in Home Ownership 2 Percent owner occupiers by age and cohort of birth 78 79
77
80
75 76 67
Percent Owner Occupier
70
70
60
55
58
50 40 29
30 20 10 0
1930s
1940s
1950s
1970s
1960s
1980s
Cohorts 20s 60s
30s
40s
Source: Survey of English Housing/English Housing Survey
50s
Cross Cohort Changes in Home Ownership 3 Cohort effects from regression models conditioning on cohort, age and time 1958 set to 0 0
-10 -20
-30
-40
-50 1924
1934
1944
1954 1964 Cohort
Year and age controls Plus income
1974
1984
1994
Plus family and individual Xs
Note: Cohort effects are derived for each year and presented as 3 year moving averages, with 1958 normalised to 0. Family and individual controls are gender, marital status, ethnicity and number of children. Income is calculated as quintiles within each survey year.
Cross Cohort Changes in Home Ownership 4 2000 to 2007
1993 to 1999
Cohort
Cohort
20, 86, 1931
20, 87, 1924 20, 86, 1987
e Ag
e Ag
20, 87, 1979
69, 86, 1931
69, 87, 1924
% Owner Occupier
20, 0, 1924
20, 0, 1931
% Owner Occupier
69, 86, 1987
69, 87, 1979
20, 0, 1987 20, 0, 1979 69, 0, 1931 69, 0, 1924 69, 0, 1987 69, 0, 1979
2008 to 2015 Cohort 20, 85, 1939 20, 85, 1993
e Ag
20, 2, 1939
% Owner Occupier
69, 85, 1939 69, 85, 1993
20, 2, 1993
69, 2, 1939 69, 2, 1993
Notes: Data points are in the format [age, owner occupation, cohort], e.g. age 40 with owner occupation of 76 percent for birth cohort 1960 = [40, 76, 1960].
Rapid increases in house prices, most particularly since late 1990s FTBs gross house price to earnings ratio 10.0 9.0
House price to earnings ratio
8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
Year
North
14/06/2017
London
UK
9
Intergenerational Patterns of Home Ownership 1 Cohort data for those born in 1958 and 1970 provides information on both parents’ and children’s home ownership (this is rare) as well as more standard variables. We have previously shown that intergenerational income correlations strengthened between these cohorts National Child Development Study (babies born in a week in 1958). British Cohort Study (babies born in a week in 1970). Started with around 18,000 observations. Followed up periodically. Mobility literature has concentrated on social class at 11/10 and family income at 16 and related these to adult measures. We now add information on housing tenure. Outcomes are measured at 42, in 2012 for most recent cohort.
Intergenerational Patterns of Home Ownership 2 Owner occupancy at age 42 by parents’ owner occupancy at age 11/10
NCDS, Age 42 in 2000
BCS, Age 42 in 2012
Percent Owner Occupiers
Percent Owner Occupiers 90
90
88
80 70 60 50
59
OO Age 16
Not OO Age 16
OO Age 16
Not OO Age 16
0
10
20
30
40
mean of oog
60 50 40 30 20 10 0
mean of oog
70
80
80 74
Intergenerational Patterns of Home Ownership 3 Intergenerational models of owner occupation NCDS, Age 42 in 2000
BCS, Age 42 in 2012
Cross Cohort Change
Parental home ownership at 11/10 Unconditional (1) Plus gender, parental age, with natural/adoptive father at 11/10
0.127 (0.008) 0.124 (0.008)
0.200 (0.010) 0.190 (0.010)
0.073 (0.012) 0.066 (0.013)
(2) Plus standardised maths and reading score at 11/10
0.095 (0.008)
0.163 (0.011)
0.068 (0.013)
9618
8402
Unconditional
0.140 (0.008)
0.217 (0.013)
0.077 (0.015)
(4) Plus gender, parental age, with natural/adoptive father at 11/10
0.139 (0.008)
0.211 (0.013)
0.072 (0.015)
(5) Plus standardised maths and reading score at 11/10
0.114 (0.009)
0.185 (0.013)
0.071 (0.015)
8375
6267
Sample Size Parental home ownership at 16
Sample Size
The Importance of Parental Home Ownership for the Cross Cohort Changes 1 Parental home ownership is becoming more important, and the increase is sizable: 1). In terms of odds ratios, the likelihood of a cohort member owning their home if their parents did compared to a cohort member whose parents did not rises from 147 percent more likely to 191 percent more likely, or a 44 percent increase. 2). In regression models of home ownership including family background variables, parental home ownership is a more important determinant of home ownership than having parents from a professional or high income background.
Implications For Falling Intergenerational Mobility 1 Prior to this investigation, there were two known facts about the evolution of social mobility across these cohorts. First, that income mobility fell, and second, that social class mobility remained static (see, inter alia, Blanden, Gregg and Macmillan, 2013, and Erikson and Goldthorpe, 2010). For some, these two findings have proven hard to reconcile. Issues that have been considered (a non-exhaustive list) include whether differences are due to measurement error, changing income dynamics within social class, or if they are down to fundamental conceptual differences.
Implications for Falling Intergenerational Mobility 2
Comparison of intergenerational models of owner occupation, social class and earnings/income NCDS, Age 42 in 2000
Home ownership at 42 and 16
Sample size Social class at 42 and 11/10
Sample size Log(Earnings at Log(Income at 16) Sample size
42)
and
BCS, Age 42 in 2012
0.139 (0.008)
0.211 (0.013)
8375
6227
0.072 (0.005)
0.067 (0.006)
7926
6394
0.266 (0.029)
0.354 (0.026)
4340
3389
Cross Cohort Change 0.072 (0.015)
-0.004 (0.008)
0.088 (0.039)
Intergenerational Transmissions of Wealth 1 Home ownership is an important component of overall wealth.
Indeed, for individuals in middle age it is very often the largest component (excluding pension wealth). It therefore seems likely that the stronger association between parental home ownership, parental income and later home ownership that we have uncovered in the second cohort is indicative of a strengthening link between parental background and later wealth.
Can explore this using a number of variables which are proxies for wealth, or sub-components of a total wealth measure (as do Charles and Hurst, 2003, in the US using the PSID).
Intergenerational Transmissions of Wealth 2 Comparison of intergenerational models of wealth proxies, (1) Maximum samples
Home ownership at age 42 on: Parental home ownership at 16
Sample size
Log(Parental Income at 16) Sample size Log(Family Income) at 42 on: Parental home ownership at 16
Sample size
Log(Parental Income at 16) Sample size
NCDS, Age 42 in 2000
BCS, Age 42 in 2012
0.139 (0.008)
0.211 (0.013)
8375
6267
0.108 (0.013)
0.165 (0.013)
6439
4822
0.202 (0.019)
0.343 (0.025)
7345
4794
0.262 (0.028)
0.410 (0.025)
5708
3722
Cross Cohort Change
0.072 (0.015)
0.057 (0.018)
0.140 (0.032)
0.148 (0.026)
Intergenerational Transmissions of Wealth 3 Comparison of intergenerational models of wealth proxies, (2) Maximum samples
Having savings/investments at 33 on: Parental home ownership at 16
NCDS, Age 42 in 2000
BCS, Age 42 in 2012
Cross Cohort Change
0.176 (0.016) 5296
0.044 (0.019)
Sample size
0.132 (0.011) 7028
Log(Parental Income at 16) Sample size
0.108 (0.016) 5413
0.182 (0.016) 4059
0.074 (0.022)
0.016 (0.005) 6282
-0.009 (0.005)
Sample size
0.024 (0.005) 7206
Log(Parental Income at 16) Sample size
0.027 (0.007) 5542
0.013 (0.005) 4827
-0.014 (0.007)
Owing a business at 42 on: Parental home ownership at 16
Notes: All models control for gender, parental age, and whether the child lived with their natural/adoptive father at 11/10. Standard errors in parentheses.
Potential Mechanisms 1) Human capital transmissions This drives a lot of the change in intergenerational income mobility.
2) Transmissions of preferences Not investigated yet
3) Direct inheritance Data is annoying inconsistent
4) House price rises enabling parents to transfer capital to children Some evidence for this hypothesis, but more work needed.
200 0
100
Price ÂŁk
300
400
Regional house price changes
1970
1980 North North West West Midlands Greater London South West Scotland
14/06/2017
1990 Year
2000
2010
Yorkshire and Humberside East Midlands East Anglia Rest of South East Wales
20
Regional differences
NCDS, Age 42 in 2000
14/06/2017
BCS, Age 42 in 2012
Cross Cohort Change
North West
0.160 (0.033)
0.241 (0.037)
0.081 (0.050)
North
0.106 (0.024)
0.200 (0.040)
0.094** (0.044)
East and West Riding
0.150 (0.031)
0.159 (0.042)
0.010 (0.032)
North Midlands
0.120 (0.029)
0.262 (0.050)
0.143** (0.030)
Midlands
0.136 (0.036)
0.260 (0.040)
0.124** (0.055)
East Anglia
0.129 (0.026)
0.221 (0.043)
0.093 (0.049)
London and the South East
0.153 (0.029)
0.271 (0.036)
0.118** (0.046)
Southern
0.133 (0.022)
0.250 (0.061)
0.111* (0.055)
South West
0.139 (0.030)
0.172 (0.051)
0.033 (0.057)
Wales
0.113 (0.034)
0.165 (0.050)
0.051 (0.061)
Scotland
0.164 (0.034)
0.162 (0.036)
-0.003 (0.045)
21
Conclusions 1). There has been a very rapid deterioration of the prospects of home ownership facing more recent birth cohorts, and a key feature of that has been whether individuals grew up in a home owned by their parents or not. 2). The strengthening of the intergenerational home ownership relationship across time adds more to the (sometimes controversial) academic debates that have taken place about whether or not social mobility fell recently in Britain. 3). The focus on the housing market allows adds evidence that the intergenerational transmissions of wealth strengthened. 4). Further research will expand focus upon the mechanisms that may lie behind the changing link between family background and home ownership (e.g. inheritance; “Bank of Mom and Dad�; changing pattern of intergenerational transmission preferences).