Asset Maintenance as Hidden Investment Among the Rich and Poor: Evidence from Housing
41 Pages Posted: 9 Jun 2015
Date Written: June 7, 2015
Substituting maintenance for investment of fixed assets and affect their depreciation can play a major role among low-income families. We develop a simple theoretical framework that shows that poorer households, which generally face relatively higher adjustment (moving) costs and credit constraints, will adjust their home maintenance decisions in a higher degree than richer households after an income change. We test the model predictions using a panel of homeowners from the American Housing Survey for the period 1997-2011. We find that the income elasticity of maintenance is higher among low- versus high-income households and the adjustment differences are more acute for permanent than transitory income changes. For every dollar increase in the estimated permanent and transitory income, home maintenance expenses will increase by 5.2 and 2.9 cents in the lower income tertile and by zero and 0.5 cents in the upper tertile. The behavior differences are robust to alternative model specifications.
Keywords: Maintenance, income level, housing, depreciation
JEL Classification: D12, E22, R20
Suggested Citation: Suggested Citation