How Does Home Ownership Affect Health and Well-Being? Evidence from exogenous variations in subsidies in the United Kingdom

Background: There is a large literature that investigates the relationship between economic resources and health. The challenge is to identify a causal relationship, as both could be explained by unobserved characteristics, such as family background. Previous studies have used exogenous changes in economic resources such as lottery wins, inheritances, income shocks or changes in public policies. We exploit exogenous variation in the largest single asset for the majority of households: variation in housing wealth due to an exogenous public subsidy to encourage home ownership in the United Kingdom (UK).

Under a ‘Right to Buy’ scheme, renters of public housing were entitled to a discount if they bought their home. Home owners and renters of private housing were not eligible for the discount. Until 2004, the maximum value of this discount was fixed at US$57,246 regardless of location. After 18^thJanuary, 2005 however, this discount varied across the country – from US$24,104 to a maximum discount of US$75,324 depending on the Local Authority of residence. At around 30% of the value of the average house, this wealth shock was substantial. Since the early 2000s, extraction of house equity has accounted for 6-8% of total household income each year. Hence, these home ownership subsidies reflect substantial increases in wealth for the 13% of the population who are public renters.

Aim: To establish if home ownership affects an individual’s health and well-being.  

Data:We use the 2002 – 2008 waves of the British Household Panel Study (BHPS), a representative sample of UK households. We supplement these data with information on the discount rates and house prices for 320 Local Authorities obtained from the Office of National Statistics and the Land Registry. We analyse over 9,000 individuals who were renting their home in their first wave of observation. We measure health and well-being using self-assessed health, the General Health Questionnaire (GHQ) and overall life satisfaction.

Methods: We employ instrumental variable techniques, using changes in the size of the discount rates available to public renters to predict home ownership. We include private renters as individuals who were not exposed to the discounts and control for a wide range of other individual and household characteristics.

Results:The changes in home ownership amongst public renters were associated with increases in all of the health and well-being measures. Becoming a homeowner increased: GHQ by 3 points (on a 0-36 scale; p<0.01); life satisfaction by 1.5 points (on a 1-7 scale; p<0.01); and self-assessed health by 0.18 (on a 1-5 scale; p<0.01). 

Discussion: These results suggest that home ownership increases health and well-being. The ‘Right to Buy’ policy has been regarded as a success as it has started to reduce inequality. We show here that the policy has effects over and above the wealth effects. Further analysis is needed to establish the mechanisms through which homeownership affects health and well-being, and its long-term effects.