2.4 The Relationship between Material Well-being and Accommodation Costs
The second focus of our analysis is the way that accommodation costs had entered the model as a factor affecting the material well-being of older New Zealanders. In theory, high accommodation costs might be positively or negatively associated with material well-being. A positive association might arise if costs such as property rates were linked to ownership of a high valued house – the higher the rates, the more likely that the owner was prosperous. On the other hand, a negative association might exist if high accommodation costs were mainly in the form of rental payments by people who had been unsuccessful in acquiring their own home during their working life. The strength of the association between accommodation costs and material well-being, and whether it is positive or negative, might therefore depend critically on the relative importance of these two types of effect.
By analogy with our discussion of the relationship between material well-being and income above, the “type”, as well as the level, of accommodation costs may be an important predictor of material well-being. If so, this would also draw into question whether the estimated relationship represents a direct effect of accommodation costs on material well-being or whether accommodation costs are acting as a proxy for some other causal factor. Our interest in the relationship between material well-being and accommodation costs is also partly motivated by the fact that the measure of accommodation costs used in the original specification excluded property rates, and thus was only a partial measure of costs. In fact, it seems property rates were excluded from the measure of accommodation costs precisely because rates had a positive association with material well-being while other accommodation costs (mainly rent and mortgage payments) had a negative association.[13] Using the narrower definition of accommodation costs, the model estimation confirmed a statistically significant negative association between the level of material well-being and (the logarithm of) accommodation costs.
Thus, as with the income relationship discussed previously, the relationship between material well-being and accommodation costs may not reflect a simple causal interpretation. Indeed, that the reported preliminary analysis finds opposite signed effects of property rates and other components of accommodation costs suggests that accommodation costs (or its components) may simply be proxying for other factors, such as wealth and/or home ownership status, rather than having a direct impact on material well-being.
The accommodation-related characteristics of the older New Zealanders in the Survey are summarised in Table 2. The majority of older people are freehold homeowners (72%), compared to 6% with a mortgage, 13% renting, and 9% with no reported accommodation costs.[14] Freehold homeowners also have substantially lower accommodation costs ($21 per week) than either those with a mortgage ($99 per week) or renters ($94 per week). Note that older people living in institutional settings such as rest homes were not included in the coverage of the survey.
| Fraction of Sample | Average Accommodation Cost | |
|---|---|---|
| Accommodation Tenure | (1) | (2) |
| Freehold Homeowner | 0.72 | $21.08 |
| Mortgaged Homeowner | 0.06 | $98.94 |
| Renter | 0.13 | $93.97 |
| No Accommodation Costs | 0.09 | $0 |
Notes: The number of observations used is 2,986. All table entries are based on weighted calculations. Accommodation costs are weekly amounts.
Our approach here is to first adopt a more comprehensive definition of accommodation costs (by including property rates as an accommodation cost), and then to test whether the effect of this on people’s material well-being varies according to their type of housing tenure. This approach allows for the possibility that accommodation costs might have a different association with material well-being according to whether one is renting, mortgage free or still paying off a mortgage.
In particular, we again start with the original report’s generic regression specification as expressed in equation (1) above, but re-expressed here to highlight the role of accommodation costs:
(1’) 
where log(Acci) is the log of CEU-i’s accommodation costs, and β2 is the associative impact of a 1% increase in accommodation costs on material well-being.
We focus our attention here on two issues. First, what is the estimated relationship between material well-being and full or “true” accommodation costs – ie the measure of accommodation cost that includes rates as well as rents and mortgage repayments? Second, whether, and if so how, the associative effect of accommodation costs on material well-being varies according to the type of accommodation tenure the CEU has: distinguishing freehold homeowner, mortgaged homeowner, renter, and those with zero accommodation costs. In particular, treating freehold ownership as the base category, we consider extensions to equation (1’) that either includes dummy variables for the alternative tenure types and/or interactions between such dummy variables and log(Acci).[15] That is, we consider variants of the following specification:
(3) 
where Dki is a dummy variable for whether CEU-i’s accommodation tenure is of type-k, and δk and δ’k are coefficients. We refer to equation (3) as the “dummy-variables” specification when δ’k=0 for all tenure types, and as the “interactions” specification when δk=0 for all tenure types.
Again equation (3) nests the original specification, equation (1’). That is, if tenure type does not affect material well-being, then δk=0 and δ’k=0 for all tenure types in equation (3), and this specification reduces to equation (1’).
Notes
- [13]See Fergusson et al (2001a, footnote 26, page 113): “Note that the estimate of accommodation costs used here does not include rates. The reason for this is that in preliminary analysis it was found that the amount spent on rates was associated with increased material well-being, whereas other components of accommodation cost were negatively correlated with well-being.”
- [14]This situation could arise, for example, where an older person lives with other family members who cover the costs of accommodation.
- [15]We adopt a dummy variable approach for accommodation tenures here rather than, by analogy with how we relax the income specification, the fractions of accommodation costs ascribed to different components (rent, mortgage repayments, rates, etc) because these are largely mutually exclusive (rates and mortgage repayments aside).
