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To buy or not to buy: household risk hedging of housing costs

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  • Shuo Liu
  • Jin Wang
  • Weixing Wu

Abstract

This study studies Chinese households’ decision between buying or renting a primary residence from a risk hedging perspective. Although homeownership means bearing house price risk, it eliminates exposure to rent risk. Our empirical results suggest that the homeownership rate increases with the rent volatility of living areas and decreases with the probability of move. However, households no longer hedge against the rent risk when owning a second house, which is often purchased as an investment property. Furthermore, we investigate households with heads aged over 60. Due to finite life expectancy, the rent hedging benefit of owning is weakened.

Suggested Citation

  • Shuo Liu & Jin Wang & Weixing Wu, 2017. "To buy or not to buy: household risk hedging of housing costs," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 57(5), pages 1417-1445, December.
    • Handle: RePEc:bla:acctfi:v:57:y:2017:i:5:p:1417-1445
    DOI: 10.1111/acfi.12333
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    References listed on IDEAS

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    1. Jianlei Han & Jing He & Zheyao Pan & Jing Shi, 2018. "Twenty Years of Accounting and Finance Research on the Chinese Capital Market," Abacus, Accounting Foundation, University of Sydney, vol. 54(4), pages 576-599, December.

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