Those who own second homes are more likely to reduce spending on their primary residence relative to their income than those who do not own second homes, according to a study by Harvard University’s Joint Center for Housing Studies.
The study uses economic models to measure “income elasticity of demand,” which is a gauge of consumer response in spending related to a change in income.
For example, a decline in income may lead to a disproportionate rise in the quantity of inferior goods purchased and a disproportionate decline in the quantity of luxury goods purchased. A rise in income elasticity can describe a disproportionately high rise in spending for normal or luxury goods in response to a lesser rise in income.
The study provided “compelling evidence that the choice to adjust (housing) consumption by adding a second home rather than by increasing the value of the primary residence must lower demand elasticities for primary homes among second-home owners even more,” according to the center’s report. This is consistent with the expectations that the resources of second-home owners “have to be divided among more than one home,” the report states, rather than concentrated on a single home.
Those homeowners who do not own second homes are more likely to increase the value of their home by trading up to a higher-valued home and/or making improvements to their home, the study suggests.
In addition to household income, the age and minority status of the head of household are likely determinants of second-home ownership, according to the report.
Economic models that are based on data from the U.S. Census Bureau’s American Housing Survey and the U.S. Federal Reserve Board’s Survey of Consumer Finances found that age is the most predominant determinant for vacation-home ownership, the study found. The odds of owning a vacation home are 3.7 times higher among those 45-54 than for those under 35, according to a model based on the American Housing Survey, for example. And based on data from the Survey of Consumer Finances, the odds of owning a vacation home are 11.2 times greater among household heads 55-64 compared to those under 35.
“It seems plain that lifecycle matters a great deal when it comes to the likelihood of owning a second home,” the report states.
Meanwhile, minority households are less likely to own second homes, based on the data used for the study. Levels of current and permanent income, and wealth not associated with housing, also are positively associated with second-home ownership. And the Survey of Consumer Finances data suggests that the level of education can also be a factor in second-home ownership. Investment savings above $20,000 increase the likelihood of second-home ownership, based on a model of the American Housing Survey Data.
“The estimated odds that a college-educated household head would own a vacation home vs. no vacation home are over four times more than that of a household head with less than a high school education,” the report states.
Geographic location of homeowner’s primary residences doesn’t have much bearing on second-home ownership, the study found.