Academic Tenure, Income Uncertainty, and Real Estate Risk-Taking

Abstract

While real estate investment via home ownership is inherently risky for all owners, individual households face varying degrees of risk that may affect the decision to rent versus own. The uncertainty of future cash flows to an enterprise or household is likely to influence investment behavior in large, long-lived capital such as real estate. This study uses a unique data set of university professors to estimate risk preference sensitivity to changes in the degree of uncertainty of labor income. A structural modeling econometric approach indicates that nontenured professors, who have the least secure incomes, are 33% less likely to own a home than their tenured colleagues, despite having similar average incomes. For those with tenure, 38% of their home ownership can be explained by academic tenure. Our calculations indicate that 124,729 tenured professors decided to purchase a home solely because of the job security tenure entails: roughly .2% of the total U.S. national housing stock.

Keywords:

• Housing tenure
• academic tenure
• income uncertainty
• flight-to-safety
• bivariate probit
• instrumental variables

Notes

1 In the US, spending on housing investments is 3-5% of GDP. National Association of Home Builders, accessed on 5/12/2021 at https://www.nahb.org/news-and-economics/housing-economics/housings-economic-impact/housings-contribution-to-gross-domestic-product.

2 MTSU was founded in 1911 and is located in Murfreesboro Tennessee. MTSU website, accessed on 10/31/2019 at: https://mtsu.edu/about/history.php.

3 In contrast, rural campuses may have few non-student rental options while coastal or tourism cities may have few affordable homes available for purchase.

4 MTSU Provosts Office, accessed on 10/25/2019 at https://www.mtsu.edu/provost/tenpro/index.php.

5 Our theoretical reasonings for choice of instruments are presented in Section 2 of this paper.

6 In higher education, academic tenure is a form of job security. The legal meaning of tenure is the right to a specific grievance procedure that provides safeguards in the event of termination (Merriam-Webster Online Dictionary, accessed on 10/31/2019 at: https://www.merriam-webster.com/dictionary/tenure). Peterson (2006) reports that the origin of the word “tenure” derives from Middle English meaning “a status quo granted after a trial period to a teacher that gives protection from summary dismissal.”

7 Smarth Growth America website, accessed on 10/31/2019 at: https://smartgrowthamerica.org/app/uploads/2016/08/federal-involvement-in-real-estate.pdf.

8 Some report no significant relationships, however.

9 An exception is Haurin and Gill (1987).

10 Tennessee Reconnect website, accessed 11/14/2019 at: https://www.tnreconnect.gov/tabid/4788/default.aspx?iid=3252.

11 MTSU Policy 204, accessed on 11/14/2019 at: https://www.mtsu.edu/policies/academic-affairs-institution-and-faculty/204.php.

12 The survey instrument can be accessed at: https://anonymous.4open.science/r/Academic-Tenure-Income-Uncertainty-and-RealEstate-Risk-taking-FDC4/Tenure_Study_Qualtrics.pdf.

13 This issue is discussed in a following paragraph.

14 It would be natural to think that wealth is an important factor in the home ownership decision and should be included in our models, but numerous studies have shown wealth to be function of timing of earned income received over a life cycle (Barsky et al., 2002; Benhabib et al., 2017).

15 “Price Of College Increasing Almost 8 Times Faster Than Wages.” Forbes Magazine website, accessed on 11/24/2019 at: https://www.forbes.com/sites/camilomaldonado/2018/07/24/price-of-college-increasing-almost-8-times-faster-than-wages/#790476fb66c1.

16 The model structure corresponds to Greene (2008, p. 823).

17 We also ran models with additional economic variables including the real interest rate and real housing price at the time of hire, but those did not change the results and are available upon request.

18 “Full-time faculty in degree-granting post-secondary institutions, by race/ethnicity, sex, and academic rank: Fall 2009, fall 2011, and fall 2013.” NCES website, accessed on 11/26/2019 at: https://nces.ed.gov/programs/digest/d14/tables/dt14_315.20.asp.

19 FRED database, accessed on 11/26/2019 at: https://fred.stlouisfed.org/series/EOWNOCCUSQ176N.

20 “Tenure Is Dying.” Forbes Magazine website, accessed on 5/20/2021 at: https://www.forbes.com/sites/richardvedder/2020/04/13/academic-tenure-rip/?sh=72b2439615cf.

21 This is confirmed in an unpublished appendix.