Resident Age and Housing Search: Evidence From Hedonic Residuals

Abstract

Elderly people are likely to have higher housing market search costs than the population as a whole. Costly search increases the price paid by older persons for housing relative to its characteristics, and also increases the range of prices paid. To test this latter hypothesis, hedonic equations are estimated for six SMSAs using data from the Annual Housing Survey. The residuals of these hedonics represent variation in prices not explained by housing characteristics. It is found that the absolute variation of these residuals is positively related to resident age, which is evidence supporting the hypothesis that the elderly pay higher housing prices due to higher search costs. A possible policy response to this problem is to create a housing market information service directed at reducing the search costs of the elderly.