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Consumption and Investment Motives in Housing Wealth Accumulation: A French Study

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  • Arrondel, Luc
  • Lefebvre, Bruno

Abstract

The dual motives of housing behavior, consumption and investment make the analysis of housing purchases quite difficult. Nevertheless, it is better to refer to a model that keeps the two dimensional aspect of housing (Henderson and Ioannides [16]). In the absence of institutional considerations, this model predicts that it is the difference between the investment demand for housing and the consumption one that explains decisions to purchasse dwellings for owner occupation and for renting out. We have tested the model on the French data of the survey "Actifs Financiers 1992". Results show that the difference between the two demands cannot in itself explain housing purchases. Transaction costs, the tax system, the public aid policies for home ownership, and other market imperfections are inadequately dealt with. Moreover, estimation and identification of housing demand functions, both for consumption and investment, tend to show that there are portfolio motives in the factors that determine housing demand for owner occupation. French households behave in a different way than US households : for them, the difference between the two demands for housing explains behavior and consumption motives dominate primary residence purchase (Ionnides and Rosenthal [20]).

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Urban Economics.

Volume (Year): 50 (2001)
Issue (Month): 1 (July)
Pages: 112-137

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Handle: RePEc:eee:juecon:v:50:y:2001:i:1:p:112-137

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Web page: http://www.elsevier.com/locate/inca/622905

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  1. Ioannides, Yannis M & Rosenthal, Stuart S, 1994. "Estimating the Consumption and Investment Demands for Housing and Their Effect on Housing Tenure Status," The Review of Economics and Statistics, MIT Press, vol. 76(1), pages 127-41, February.
  2. Henderson, J Vernon & Ioannides, Yannis M, 1983. "A Model of Housing Tenure Choice," American Economic Review, American Economic Association, vol. 73(1), pages 98-113, March.
  3. J. A. Hausman, 1976. "Specification Tests in Econometrics," Working papers 185, Massachusetts Institute of Technology (MIT), Department of Economics.
  4. Brueckner, Jan K, 1997. "Consumption and Investment Motives and the Portfolio Choices of Homeowners," The Journal of Real Estate Finance and Economics, Springer, vol. 15(2), pages 159-80, October.
  5. Bodie, Zvi & Merton, Robert C. & Samuelson, William F., 1992. "Labor supply flexibility and portfolio choice in a life cycle model," Journal of Economic Dynamics and Control, Elsevier, vol. 16(3-4), pages 427-449.
  6. Brueckner, Jan K., 1986. "The downpayment constraint and housing tenure choice : A simplified exposition," Regional Science and Urban Economics, Elsevier, vol. 16(4), pages 519-525, November.
  7. Fu, Yuming, 1991. "A Model of Housing Tenure Choice: Comment," American Economic Review, American Economic Association, vol. 81(1), pages 381-83, March.
  8. Ioannides, Yannis M., 1989. "Housing, other real estate, and wealth portfolios : An empirical investigation based on the 1983 Survey of Consumer Finances," Regional Science and Urban Economics, Elsevier, vol. 19(2), pages 259-280, May.
  9. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 31(3), pages 129-137.
  10. Luc ARRONDEL & André MASSON, 1990. "Hypothèse du cycle de vie, diversification et composition du patrimoine: France 1986," Annales d'Economie et de Statistique, ENSAE, issue 17, pages 1-45.
  11. Peter Linneman & Susan Wachter, 1989. "The Impacts of Borrowing Constraints on Homeownership," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 17(4), pages 389-402.
  12. Miles S. Kimball, 1991. "Standard Risk Aversion," NBER Technical Working Papers 0099, National Bureau of Economic Research, Inc.
  13. Paxson, Christina, 1990. "Borrowing Constraints and Portfolio Choice," The Quarterly Journal of Economics, MIT Press, vol. 105(2), pages 535-43, May.
  14. James R. Follain & David C. Ling, 1988. "Another Look at Tenure Choice, Inflation, and Taxes," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 16(3), pages 207-229.
  15. Artle, Roland & Varaiya, Pravin, 1978. "Life cycle consumption and homeownership," Journal of Economic Theory, Elsevier, vol. 18(1), pages 38-58, June.
  16. Smith, Lawrence B & Rosen, Kenneth T & Fallis, George, 1988. "Recent Developments in Economic Models of Housing Markets," Journal of Economic Literature, American Economic Association, vol. 26(1), pages 29-64, March.
  17. King, Mervyn A. & Leape, Jonathan I., 1998. "Wealth and portfolio composition: Theory and evidence," Journal of Public Economics, Elsevier, vol. 69(2), pages 155-193, June.
  18. André Masson & Luc Arrondel, 1996. "Gestion du risque et comportements patrimoniaux," Économie et Statistique, Programme National Persée, vol. 296(1), pages 63-89.
  19. Sandmo, Agnar, 1969. "Capital Risk, Consumption, and Portfolio Choice," Econometrica, Econometric Society, vol. 37(4), pages 586-99, October.
  20. Luc Arrondel, 1996. "Patrimoine des ménages : toujours le logement, mais aussi les actifs de précaution," Économie et Statistique, Programme National Persée, vol. 296(1), pages 33-62.
  21. Henderson, J. Vernon & Ioannides, Yannis M., 1987. "Owner occupancy: Investment vs consumption demand," Journal of Urban Economics, Elsevier, vol. 21(2), pages 228-241, March.
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Cited by:
  1. Seymour Spilerman & François-Charles Wolff, 2012. "Parental wealth and resource transfers : How they matter in France for home ownership and living standards," Working Papers hal-00678988, HAL.
  2. Arrondel, L. & Savignac, F., 2009. "Stockholding: Does housing wealth matter?," Working papers 266, Banque de France.
  3. Hiroshi Sato & Terry Sicular & Ximing Yue, 2011. "Housing Ownership, Incomes, and Inequality in China, 2002-2007," University of Western Ontario, CIBC Centre for Human Capital and Productivity Working Papers 201112, University of Western Ontario, CIBC Centre for Human Capital and Productivity.
  4. Dietz, Robert D. & Haurin, Donald R., 2003. "The social and private micro-level consequences of homeownership," Journal of Urban Economics, Elsevier, vol. 54(3), pages 401-450, November.
  5. Bellod Redondo, José Francisco, 2009. "El precio de la vivienda y la inflación en España," El Trimestre Económico, Fondo de Cultura Económica, vol. 0(302), pages 379-405, abril-jun.

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