Multiple-Home Ownership and the Income Elasticity of Housing Demand

An interesting trend in the U.S. housing market is the growing number of households owning second homes. This topic is of interest because households that divide their consumption of housing services among two or more properties may make distinct housing decisions relative to households that own only one residence. For example, because budgets are constrained, homeowners who decide to split their housing consumption between two residences could afford two less expensive houses rather than one primary home of higher value. This could have important implications for housing demand in terms of the size and location of property, thereby affecting the urban form and investment decisions in land and housing markets. Because most housing demand models assume single-home ownership (except for models that address real estate as an investment), predictions for the future urbanization pattern and housing demand could be affected. Nevertheless, the topic of second- or multiple-home ownership has largely been unexplored.

Eric Belsky, Zhu Xiao Di, and Dan McCue discuss the findings of their study on second-home ownership for consumption purposes, focusing on the income elasticity of housing demand. Based on regressions using data from the American Housing Survey (AHS) and the Survey of Consumer Finances (SCF), Belsky, Di, and McCue find that age (after controlling for income and wealth) is the predominant variable associated with second-home ownership, and that people in the 55–64 age group are the most likely to own second (or vacation) homes. According to the authors’ estimates based on AHS data, this segment of the population is 6.5 times more likely to have a second home than people under age 35. Besides age, ethnicity and education also play a significant role in multiple-home ownership.

As for the relationship between income and multiple-home ownership, owning a second home appears to lower the income elasticity of demand for the primary residence, because financial resources are split between two houses instead of concentrating on one. A comparison of the demand elasticities for primary and second homes reveals that the income elasticity of demand for second homes is lower than that for primary residences. For households that do not own a second house, income elasticities of housing consumption range from 0.92 to 1.66 and are higher relative to the elasticity (0.83) for those owning a second home (see table 14.5 in this volume). This result indicates that second-home ownership can lower the income elasticity of total housing demand.

This paper was presented at the Lincoln Institute’s annual Land Policy Conference in 2006 and is Chapter 14 of the book Land Policies and Their Outcomes.