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Housing and Happiness: an Empirical Study

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Housing and Happiness: an Empirical Study UNIVERSITY OF READING Housing and Happiness: an empirical study Ph.D in Real Estate and Planning Department of Real Estate and Planning Mr. Chris Foye Submitted: December, 2016 2 Statement of contribution Chapter 8 was co-authored with Prof. David Clapham and Dr. Tommaso Gabrieli. Their contribution included guidance and insight of both theoretical and empirical nature. The development of the conceptual framework, the formation of the hypotheses, and all the empirical work was carried out by myself. Approximately 90 percent of the chapter can be attributed to me. Both co-authors agree with the above statement. Declaration: I confirm that this is my own work and the use of all materials from other sources has been properly and fully acknowledge Chris Foye 3 4 Abstract This thesis empirically examines the relationship between housing and happiness, and in particular, how this relationship is affected by adaptation and social status. Standard economic theory assumes housing preferences are constructed independently of past experience and social context. Using fixed effect regressions on the British Household Panel Study (BHPS) and the German Socio Economic Panel Study (GSOEP), this thesis challenges this assumption. Chapter 2 outlines why happiness is important. Chapter 3 traces the role of happiness in economics over time, showing the limitations of choice behaviour as a measure of happiness. Chapter 4 advances an alternative way of measuring happiness adopted in this thesis; subjective judgements. Chapter 5 reviews the literature on housing and happiness, adaptation and social status. The next three empirical chapters represent the main contribution of this thesis. In terms of adaptation, Chapter 6 shows that moving to “larger accommodation” increases housing satisfaction, but this uplift diminishes post-move. Chapter 7 demonstrates that current space preferences are affected by the level of living space experienced in the previous year. In terms of social comparisons, Chapter 7 also demonstrates that space preferences are affected by regional and national levels of living space, implying house size is a positional good. Chapter 8 conceptualises home-ownership (in the UK) as a social norm and positional good, and demonstrates that, consistent with this hypothesis, a strengthening of relevant others’ home- ownership values is associated with increases (decreases) in the happiness of home-owners (renters), while an increase in relevant others’ home-ownership rates decreases the life satisfaction of owners. Chapter 9 discusses the main empirical findings and concludes by operationalising Sen’s capabilities approach as a means to translating the empirical finding into some housing policy recommendations. 5 6 Contents ACKNOWLEDGEMENTS ................................................................................................ 11 1. INTRODUCTION .......................................................................................................... 12 1.1. Research design ....................................................................................................... 18 2. HAPPINESS AND THE CAPABILITIES APPROACH ............................................... 21 2.1. The problems with utilitarianism ............................................................................ 21 2.2. Happiness and the capability approach ................................................................... 23 3. UTILITY AND HAPPINESS ......................................................................................... 31 3.1. Brief history of utility .............................................................................................. 31 3.2. The problems with using choices as an indicator of happiness ............................... 33 4. MEASURING HAPPINESS ........................................................................................... 35 4.1. Brief history of subjective happiness measures ...................................................... 35 4.2. Theories of happiness .............................................................................................. 36 4.3. Indicators of happiness used in this thesis .............................................................. 39 5. HOUSING AND HAPPINESS: A REVIEW ................................................................. 43 5.1. Standard economic theory in housing economics ................................................... 43 5.2. Relationship between housing and happiness ......................................................... 47 5.3. Standard economic theory, adaptation and social comparisons .............................. 55 5.4. Adaptation theories ................................................................................................. 57 5.5. Social Comparison Theories ................................................................................... 58 5.6. Summary ................................................................................................................. 65 5.7. A note on data ......................................................................................................... 66 5.8. UK vs Germany....................................................................................................... 68 6. SIZE OF LIVING SPACE AND HAPPINESS .............................................................. 71 6.1. Introduction ............................................................................................................. 71 6.2. Literature Review and Theory................................................................................. 72 6.3. Data and Methodology ............................................................................................ 78 6.4. Results ..................................................................................................................... 83 6.5. Review of findings .................................................................................................. 95 7. EFFECT OF ADAPTATION AND SOCIAL COMPARISONS ON SIZE OF LIVING SPACE PREFERENCES ........................................................................................................ 99 7.1. Introduction ............................................................................................................. 99 7.2. Literature Review .................................................................................................... 99 7.3. Data and Methodology .......................................................................................... 104 7 7.4. Results ................................................................................................................... 108 7.5. Robustness checks ................................................................................................. 115 7.6. Review of findings ................................................................................................ 116 8. HOME OWNERSHIP AS A SOCIAL NORM AND POSITIONAL GOOD: HAPPINESS EVIDENCE FROM PANEL DATA .............................................................. 119 8.1. Introduction ........................................................................................................... 119 8.2. Literature Review and Theoretical Framework ..................................................... 121 8.3. Data and Methodology .......................................................................................... 124 8.4. Results ................................................................................................................... 126 8.5. Robustness Checks ................................................................................................ 131 8.6. Review of findings ................................................................................................ 133 9. DISCUSSION AND CONCLUSION ........................................................................... 135 9.1. Social Status .......................................................................................................... 136 9.2. Adaptation ............................................................................................................. 147 9.3. A more just housing policy? .................................................................................. 149 10. REFERENCES .......................................................................................................... 156 11. APPENDICES ........................................................................................................... 180 11.1. Chapter 5 ........................................................................................................... 180 11.2. Chapter 6 ........................................................................................................... 181 11.3. Chapter 7 ........................................................................................................... 187 11.4. Chapter 8 ........................................................................................................... 194 FIGURES Figure 1: Example of question in BHPS General Health Questionnaire (GHQ) Figure 2: The effect of moving for ‘larger accommodation’ on housing satisfaction over time sample Figure 3 : Cross-Sectional analysis of relationship between space decile and % reporting space shortage in Germany, 2012 Figure 4: Relationship between median metres per person and % reporting space shortage over time in Germany Figure 5: Cross-Sectional analysis
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