Labour Income Uncertainty, Risk Aversion and Home Ownership
AbstractIn this paper we investigate the effect of labour income uncertainty on the probability of homeownership in Germany and Spain. This study is motivated by two facts. Firstly, theoretical models tend to provide ambiguous results in this issue. Secondly, there is limited previous empirical evidence and the existing focuses exclusively on the US housing market. We claim that more international evidence is necessary in order to disentangle this puzzle. We develop a simple theoretical formula that highlights the pivotal role of risk attitudes in the housing tenure decisions that also allow us to introduce the concept of "skewness affection" as a relevant phenomenon. To carry out this test we propose an income uncertainty measure based on panel data labour income equations. We observe that households facing increasing income uncertainty display preference for renting while those located in a positively skewed income distribution show a greater propensity for homeownership. Income uncertainty analysis in housing decisions has important implications for the design of public housing policies and also for the design of private mortgage insurance products.
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Bibliographic InfoPaper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1008.
Length: 39 pages
Date of creation: Feb 2004
Date of revision:
Publication status: published as 'Labor income uncertainty, skewness and homeownership: A panel data study for Germany and Spain ' in: Journal of Urban Economics, 2005, 58 (1), 156-176
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Find related papers by JEL classification:
- D1 - Microeconomics - - Household Behavior
- R0 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General
- J0 - Labor and Demographic Economics - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-02-23 (All new papers)
- NEP-GEO-2004-02-23 (Economic Geography)
- NEP-LAB-2004-02-23 (Labour Economics)
- NEP-MIC-2004-02-23 (Microeconomics)
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