Late-life Disability, Homeownership, Wealth and Mortality

This paper uses data from the Health and Retirement Study to investigate when the older homeowners suffering from late-life disability exit from homeownership and how this exit influences their total wealth and mortality. There has been a growing emphasis on “aging in place.” Data show that elderly rarely downsize their houses or move unless a drastic event such as an illness or death of a spouse occurs. Housing equity is the most important asset in the portfolios of large fraction of older Americans. Housing directly provides utility, and there are transaction costs associated with the purchasing and selling a house. The expanded life-cycle models have shown that bequest motives, as well as health and medical risks, are the driving forces of the puzzling phenomena. Aging in place in poor health, on the other hand, might require expensive home-based care. Obtaining care at home might cause reduced quality of care leading to increased mortality. If the current housing lacks basic accessibility features, it would also prevent disabled older adults from living safely in their home. Within the scope of benefit-cost framework, we propose that elderly with declining health and functional capacity should exit homeownership (i.e., move to a nursing home, to a retirement facility or move in with a relative) when the expected cost of “aging in place” outweighs the expected benefits.

Measurement of health status at older ages is complex. No single indicator fully captures all aspects of health. We focus on functional disability, which reflects restrictions in carrying out specific activities. We measure late-life disability using limitations with six activities of daily life (ADLs) including walking across the room, bathing, dressing, eating, getting in/out bed, and toileting and five instrumental activities of daily life (IADLs) including using telephone, managing money, taking medication, shopping for groceries, and preparing hot meal. Around 11 million Americans report difficulty with performing one or more ADLs or IADLs, and about half of this population is over the age 65. Difficulties with ADLs and IADLs increase with age, and the loss of functional capacity leads to rise in morbidity and mortality.

Findings from fixed effects models show that older homeowners are less likely to move unless they experience severe difficulties with ADLs, measured as difficulties with five or six ADLs. On the other hand, elderly needing help with two or more IADLs are more likely to move. When older households with diminished functional capacity move, they are less likely continue to be homeowners, and experience sharp drops in housing and total wealth. We did not find any increases in financial assets and non-housing wealth following the move and exit from homeownership. The decline in total wealth and increase in out-of-pocket health care expenditures generate lower bequest intentions for those who exit from homeownership. Upon leaving homeownership, there are some gains in mortality for those having difficulties with IADLs, but not for those having difficulties with ADLs. Our findings have significant implications for intergenerational wealth transfers, housing market and aging policy.