Do households use home-ownership to insure themselves? Evidence across U.S. cities

Amior, Michael and Halket, Jonathan (2014) Do households use home-ownership to insure themselves? Evidence across U.S. cities. Quantitative Economics, 5 (3). pp. 631-674. ISSN 1759-7323

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Abstract

Are households more likely to be homeowners when “housing risk” is higher? We show that home-ownership rates and loan-to-value (LTV) ratios at the city level are strongly negatively correlated with local house price volatility. However, causal inference is confounded by house price levels, which are systematically correlated with housing risk in an intuitive way: in cities where the land value is larger relative to the local cost of structures, house prices are higher and more volatile. We disentangle the contributions of high price levels from high volatilities by building a life-cycle model of home-ownership choices. We find that higher price levels can explain most of the lower home-ownership. Higher risk in the model leads to slightly lower home-ownership and LTV ratios in high land value cities. The relationship between LTV and risk is corroborated by LTV's negative correlation with price volatility in the data and highlights the importance of including other means of incomplete insurance in models of home-ownership.

Item Type:	Article
Official URL:	http://onlinelibrary.wiley.com/journal/10.1111/(IS...
Additional Information:	© 2014 The Authors
Divisions:	Centre for Economic Performance
Subjects:	H Social Sciences > HC Economic History and Conditions H Social Sciences > HN Social history and conditions. Social problems. Social reform
JEL classification:	D - Microeconomics > D9 - Intertemporal Choice and Growth > D91 - Intertemporal Consumer Choice; Life Cycle Models and Saving E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Employment, and Investment > E21 - Macroeconomics: Consumption; Saving; Aggregate Physical and Financial Consumer Wealth R - Urban, Rural, and Regional Economics > R2 - Household Analysis > R21 - Housing Demand R - Urban, Rural, and Regional Economics > R3 - Production Analysis and Firm Location > R31 - Housing Supply and Markets
Date Deposited:	07 Jan 2015 15:49
Last Modified:	12 Dec 2024 00:44
Projects:	ESRC Grant PTA-026-27-2395, ESRC-CeMMAP Grant ES/I034021/1
Funders:	Economic and Social Research Council, Economic and Social Research Council (ESRC) Centre for Microdata Methods and Practice (CeMMAP), Royal Economic Society (RES)
URI:	http://eprints.lse.ac.uk/id/eprint/60635

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