Homeownership and subjective well-being: Are the links heterogeneous across location, age and income?

Abstract

This article examines the impact of homeownership on subjective well-being and how it varies by location, age and income in Australia. We apply panel data models with instrumental variables within a two-stage modelling framework and find that homeownership, particularly outright ownership, positively affects subjective well-being – as measured by life, financial, home and neighbourhood satisfaction – relative to renting. However, these effects are not homogeneous. Outright owners in major urban locations enjoy higher financial satisfaction but poorer neighbourhood satisfaction than their counterparts outside major urban locations. The subjective well-being gap between owners and renters widens as age increases within the age range of 30s to 60s. However, the presence of mortgage debt depresses the financial satisfaction associated with homeownership. Beyond age 50, the existence of a mortgage debt burden cancels any positive financial satisfaction effects that homeownership has relative to renting. As income increases, the positive effects of homeownership on subjective well-being diminishes in the domain of financial satisfaction This reflects greater diversification in high-income households’ asset portfolios compared to low-income households’ portfolios. We discuss the policy implications of these heterogeneous effects.