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Are Homeowners Irrational Investors? The Effect of Housing Tenure on Household Investment Allocation in the United Kingdom

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  • Franz Fuerst
  • Marco Felici

Abstract

The importance of housing tenure on individuals’ behaviour is widely recognised and studied. Arguably, one aspect that is crucial, with wide-ranging implications for macroeconomic fluctuations and possibly for economic inequality, is the effect of housing on the portfolio composition of households, and more specifically how the fact of being a homeowner, as compared to a renter or a mortgagor, affects portfolio efficiency. We first explore this question theoretically, using a mean-variance framework adjusted for the presence of housing in the portfolio. We then turn to UK data from the Wealth and Assets Survey to confirm empirically the predictions of the model: the five waves of the survey allow to break down households' portfolios in detail, as well as to account for a wide range of covariates and for individual unobserved heterogeneity.

Suggested Citation

  • Franz Fuerst & Marco Felici, 2019. "Are Homeowners Irrational Investors? The Effect of Housing Tenure on Household Investment Allocation in the United Kingdom," ERES eres2019_326, European Real Estate Society (ERES).
    • Handle: RePEc:arz:wpaper:eres2019_326
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    More about this item

    Keywords

    Household microdata; Household portfolio choice; Liquid assets; Microeconomics of housing;
    All these keywords.

    JEL classification:

    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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