House prices and divorces are linked, but not in the way you think

What’s the relationship between house prices and divorce, and why is it important? Most people would assume that higher house prices would cause more unhappy spouses to delay the decision to leave, due to financial constraints. It’s harder to contemplate the gruelling and expensive process of separation and divorce if you know that prices are rising – and that by the time you find a new abode, it will be much costlier.

But it’s not that simple.

House prices have risen about 38 per cent in the past five years, and divorce is at its lowest level since the introduction of no-fault divorce in 1976.Credit: Monique Westermann

Our research looked at the relationship between house prices, which have risen about 38 per cent in the past five years, and divorce, which is at its lowest level since the introduction of no-fault divorce in 1976.

Australian households are experiencing a cost-of-living crisis at present. The 1990s recession was also a period of significant financial hardship for households but, in contrast, divorces rose over that time.

What has changed? Our research looked at general perceptions of the housing market; our findings showed a difference between housing price increases that were higher or lower than expected.

For home owners, lower-than-anticipated housing price growth significantly increases the likelihood of separation. In this case, the cost of lower house prices is more important than the benefit of lower house prices. When house prices don’t grow as quickly as anticipated, couples can separate knowing they will not face as large a penalty running separate households.

This time around, the growth in housing prices in the past five years has been much higher than expected, so couples face a different trade-off. The benefit of higher house prices is outweighed by the cost of having to support two households if they separate.

So what lessons may be drawn from this research, and why is a link between home prices and divorce important?

Our findings indicate higher-than-expected house price growth may be keeping some people in marriages they’d otherwise leave, but don’t. This is more likely to include women with low education levels, low-income households and older couples.

In some instances, this will have harmful consequences, which are disproportionately experienced by women. Policy settings have a role to play in reducing those effects.

One needs to look only at initiatives such as the Leaving Violence Program. By providing financial support to assist people leaving potentially dangerous relationships, it will alleviate barriers associated with high housing costs that come after separation.

To understand patterns of divorce, a good place to start is to think about why couples choose to marry, or separate, in the first place.

Economists – who are romantics at heart – argue that individuals marry if the expected benefits from marriage exceed the benefits from remaining single.

As new information arises or unexpected outcomes occur, individuals may reassess their beliefs about the expected benefits of being married versus being single.

In turn, we might expect that separation occurs if either partner believes they will be better off outside the marriage than within it, taking into account all costs and constraints.

Higher housing prices are simply one contributor, although a very important one, to the cost-of-living crisis that Australian households face. Energy prices are another.

Those higher costs of living and the financial stress associated with them are linked to a range of adverse outcomes for households, including poor health and wellbeing, greater housing insecurity, and some families having to go without some essential items.

Research shows that housing prices are closely linked to a range of household behaviours and outcomes, including consumer spending, labour supply and fertility intentions.

The decision to split up a marriage is closely linked to perceptions of house price growth. Credit: AFR

Rising prices of housing might encourage couples to remain married (or not to separate) due to the higher housing costs they would face otherwise.

It is generally cheaper to run a single household where many resources are shared than two separate households. This may be considered a cost that accompanies higher house prices.

Of course, higher house prices also offer some benefit in the event of separation. For home owners, the asset held by the couple is more valuable, and the wealth each partner may be entitled to is greater. This benefit from separation might encourage couples to separate and divorce.

Our research, presented at the Australian Conference of Economists and not yet peer-reviewed, addresses this issue. We looked at whether unanticipated changes in the growth of housing prices are related to the likelihood of divorce.

It is important to focus on unanticipated changes in housing prices. Unanticipated changes, or “shocks”, will lead individuals to reassess their decision to stay married, or to separate and divorce.

Our research sought to understand key factors associated with divorce in Australia using the Household, Income and Labour Dynamics in Australia (HILDA) survey.

Not unexpectedly, we found that couples who share similar traits such as religion, education level or place of birth are more likely to remain married. A longer time being married is also linked to couples being less likely to separate. In contrast, partners whose parents had divorced are more likely to separate.

Stephen Whelan, Professor of Economics, University of Sydney and Luke Hartigan, Lecturer in Economics, University of Sydney

This article is republished from The Conversation under a Creative Commons license. Read the original article.