Housing Equity Extraction from Older Adults via Reduction in Home Improvement

Housing equity accounts for a substantial share of retirees’ total wealth, yet many do not
use their housing equity to increase consumption in retirement as the Life-Cycle Hypothesis
predicts they should. We show that retirees spend a decreasing share of their house value on
home improvement as they age, cumulatively summing to 8.4 percent of mean house value
for married households. This reduction in home improvement could explain why house values
for older adults have lower appreciation rates and why the quality of houses of older adults
has decline. Reduction in home improvement can serve as a method of equity extraction for
households that are unable to acquire traditional or reverse mortgage instruments.