Academic Tenure, Income Uncertainty, and Real Estate Risk-Taking
By: Stuart Fowler, Sean Salter, Cayman Seagraves, and Philip Seagraves
Journal of Housing Research, 2021, 31(2), pp. 113-134
Abstract
View on Journal SiteWhile 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.
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Executive Summary
Research Question: Does job security in the form of academic tenure influence university professors’ willingness to purchase homes?
Core Finding: We find that achieving tenure increases the probability of owning a home by roughly one-third (ATE ≈ 33%, p < 0.01). Among professors who already hold tenure, 38 percent of their home-ownership decisions can be attributed directly to that job security.
Top Implication: Therefore, industry players should recognize that income-risk mitigation mechanisms—whether tenure, union protections, or long-term contracts—materially raise household demand for owner-occupied housing and can shift local market absorption rates.
Professors without tenure face uncertain future cash-flows. Using a survey of 209 faculty at a mid-sized U.S. university and a recursive bivariate probit model, the authors show that nontenured faculty are 33 percent less likely to buy homes, despite comparable salaries. Translating this effect nationwide implies that roughly 125,000 U.S. homes—about 0.2 percent of the owner-occupied stock—exist because of academic tenure. Practitioners, lenders, and policymakers can treat tenure (or its analogs) as a measurable catalyst for housing demand and portfolio risk-adjusted return.
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