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Title: Do Households Rent Because They Want To Or Because They Have To?

Citation Type: Miscellaneous

Publication Year: 2008

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Abstract: Many young households rent their primary residence despite the lower user-cost of owning.Owning, however, requires the household make a down payment and is an illiquid and riskyinvestment. While young households typically have low wealth, they also have dierent familyand career concerns than older households and may not expect to stay in any residence long.In a Beweley-type model with endogenous mobility and home ownership, we assess the con-tribution of nancial constraints, family changes, and career concerns to home ownership overthe life cycle. We prove existence of a steady state with stochastic prices where the household'sproblem has a nite-dimensional state object. We nd that, while 5 percent of young house-holds are constrained from owning, the prole of earnings and desire for mobility are moreimportant determinants of the ownership rate. The presence of family size changes leads tohigher ownership for the very youngest households while middle-aged households are less likelyto own. Lowering the down payment required to purchase a home does not lead to a rise in house prices when choice set for housing does not change with ownership.

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Authors: Halket, Jonathan; Vasudev, Santhanagopalan

Publisher: New York University

Data Collections: IPUMS USA

Topics: Housing and Segregation, Other, Poverty and Welfare

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