Home Maintenance and Housing Disinvestment among Older Americans

Housing assets account for a significant share of total household wealth for older Americans,
but contrary to the predictions of the permanent income hypothesis, there is little evidence
that households use housing equity as a regular source of income in retirement to smooth consumption. This study investigates the role that endogenous depreciation of the housing stock
through deferred maintenance plays in allowing older households to extract value from their
homes. We develop a household production model where households can either purchase professional services or undertake maintenance by combining market goods and time. We then
estimate the value of home production to calculate the total value of housing disinvestment.
We find that married households disinvest $20,864 between the ages of 65-84 by decreasing
time and expenditure on maintenance, or 9.4% of mean home value. In contrast, single households disinvest an average $2,636 over the same ages, suggesting important complementarity
in spousal time. Interestingly, not only do households extract an important share of home value
through deferred maintenance, they appear to be forward looking, increasing both time and expenditure on maintenance in the years just prior to age 65 in expectation that they will reduce
maintenance after retirement.