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Title: The Effects of Local Risk on Homeownership
Citation Type: Miscellaneous
Publication Year: 2018
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Abstract: Housing is a local good and local risk could affect housing decisions. We develops a household intertemporal choice model to illustrate how local income risks affect household tenure choice and housing price through financial investment effect and consumption hedging effect. We decompose income dynamics into three components: idiosyncratic growth (local alpha), systematic risk (local beta) and idiosyncratic risk (local sigma). Using the Current Population Survey 1999-2014, we find that households have stronger incentives to purchase housing asset in a region with higher systematic risk and lower idiosyncratic risk, due to consumption hedging effect and financial investment effect respectively. Effects are stronger in the areas with low housing supply elasticity. Price-to-rent ratios also increases with local alpha and local beta, and decreases with local sigma.
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Authors: Zhang, Sisi; Zhao, Daxuan
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Data Collections: IPUMS CPS
Topics: Housing and Segregation
Countries: United States