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Renting versus Owning and the Role of Income Risk: The Case of Germany

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  • Rainer Schulz
  • Martin Wersing
  • Axel Werwatz

Abstract

In a world with complete markets and no transactions cost, the decision whether to rent or buy a home is separate from a household's professional income risk. If markets are incomplete and have frictions, however, profession- specific income risk, regional house price risk, and mobility needs will interact and should affect the tenure mode choice. Using panel data from West Germany, we establish homogeneous profession groups and estimate their regional net income risk and regional mobility. We then examine the impact of the risk and mobility variables on the tenure mode decision at the aggregate and the individual household level. We find that the diversification potential of renting affects the tenure mode choice as do mobility needs.

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Bibliographic Info

Paper provided by Sonderforschungsbereich 649, Humboldt University, Berlin, Germany in its series SFB 649 Discussion Papers with number SFB649DP2009-060.

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Length: 54 pages
Date of creation: Dec 2009
Date of revision:
Handle: RePEc:hum:wpaper:sfb649dp2009-060

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Keywords: Tenure mode choice; background risk; household mobility;

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