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January 28, 2015

Is the homeownership safety net unraveling for seniors?

January 28, 2015

Homeownership has traditionally offered a financial safe haven to the more than 80 percent of seniors who own their homes. But declining homeownership rates in the generation of upcoming retirees and the higher mortgage debt of senior homeowners may threaten this safe haven in coming years. In a recent data talk hosted by the Urban Institute’s Housing Finance Policy Center, Christopher Herbert of the Joint Center for Housing Studies at Harvard University and Gary Engelhardt of Syracuse University discussed this and other housing challenges for seniors and policy makers.

A traditional financial safety net for seniors

While the benefits of owning a home compared with renting have been under close scrutiny since the housing market crash, seniors who own their home have some critical advantages. “The major benefit of homeownership to seniors is the ability to live rent free” once the mortgage is paid off, according to Herbert. For example, of households headed by someone aged 65 to 79, only 12 percent of homeowners without mortgages spend more than 30 percent of their income on housing costs, compared with over 50 percent of renters and 45 percent of homeowners with mortgages.

Furthermore, when health or family circumstances change, seniors with substantial home equity enjoy an easier transition to costlier forms of senior housing like assisted living. Homeowners typically have a much larger buffer of wealth than renters, even excluding home equity. The median total wealth of homeowners age 50 and up in 2010 was $267,100, nearly evenly split between home equity and other assets. The comparable age group of renters had a median wealth of just $6,100, according to Herbert.

Fewer senior homeowners with more debt

According to the American Community Survey, however, while homeownership remained steady or increased for those 75 and older from 2010 to 2013, the homeownership rate declined slightly each year among 45-74 year olds. On top of the anticipated decrease in the share of senior homeowners, homeownership is increasingly a burden, rather than a relief, for some older Americans.

Unlike younger age groups, whose rate of indebtedness has declined since the peak of the housing bubble, a larger share of householders age 65 and up carried mortgage debt in 2011 than in 2005. Moreover, the median amount of home debt has climbed, and an increasing percentage of senior homeowners are behind on payments or in foreclosure, according to a Consumer Finance Protection Bureau report.

Thus, a growing population of senior homeowners may miss out on the key benefit of low monthly housing expenses, and are less likely to have sufficient household equity to easily transition to assisted living. And given the drop in the homeownership rate for those just under 65, as well as the large size of that cohort, the number of low-income senior renters will grow substantially over the next 15 years. Both panelists noted that current government policies include no plans to accommodate additional demand for affordable rental units.

Housing impacts the health of seniors as well

For many seniors, housing challenges extend beyond affordability, with a growing body of research focusing on the relationship between adequate, accommodative housing for seniors and health outcomes. Currently available data are somewhat confounding. For example, Engelhardt said, rental housing is more likely than owner-occupied housing to include safety features such as railings and shower seats, but renters are still more likely to experience a fall that necessitates urgent or emergency treatment. Engelhardt attributes this to renters’ lower income and wealth, which in turn results in their coming into their senior years in poorer health. Additional work is clearly needed on the relationship between home safety modifications and better health outcomes, including better understanding of which safety features are most cost-effective, both for new construction and modifications.

Photo: De Visu/Shutterstock

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