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On the negative relationship between labor income uncertainty and homeownership: Risk-aversion vs. credit constraints

  • Diaz-Serrano, Luis

In this paper we test for the first time whether the driving force behind the negative effect of income uncertainty on owner-occupancy propensities is risk aversion or credit constraints. To disentangle this puzzle we estimate reduced form equations using Italian data. Consistent with the previous empirical evidence in the US, our results confirm that in Italy both labor income uncertainty and credit constraints exert a significant negative effect on the probability of homeownership. However, our main findings indicate that the negative relationship between labor income uncertainty and homeownership is driven by households’ risk aversion.

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

Volume (Year): 14 (2005)
Issue (Month): 2 (June)
Pages: 109-126

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Handle: RePEc:eee:jhouse:v:14:y:2005:i:2:p:109-126
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622881

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  1. Christofides, Louis N. & Stengos, Thanasis & Swidinsky, Robert, 1997. "On the calculation of marginal effects in the bivariate probit model," Economics Letters, Elsevier, vol. 54(3), pages 203-208, July.
  2. Irina Barakova & Raphael Bostic & Paul Calem & Susan Wachter, . "Does Credit Quality Matter for Homeownership?," Zell/Lurie Center Working Papers 410, Wharton School Samuel Zell and Robert Lurie Real Estate Center, University of Pennsylvania.
  3. Luigi Guiso & Monica Paiella, 2008. "Risk Aversion, Wealth, and Background Risk," Journal of the European Economic Association, MIT Press, vol. 6(6), pages 1109-1150, December.
  4. Fu, Yuming, 1995. "Uncertainty, liquidity, and housing choices," Regional Science and Urban Economics, Elsevier, vol. 25(2), pages 223-236, April.
  5. Brunello, Giorgio, 2000. "Absolute Risk Aversion and the Returns to Education," IZA Discussion Papers 192, Institute for the Study of Labor (IZA).
  6. Quercia, Roberto G. & McCarthy, George W. & Wachter, Susan M., 2003. "The impacts of affordable lending efforts on homeownership rates," Journal of Housing Economics, Elsevier, vol. 12(1), pages 29-59, March.
  7. Jianakoplos, Nancy Ammon & Bernasek, Alexandra, 1998. "Are Women More Risk Averse?," Economic Inquiry, Western Economic Association International, vol. 36(4), pages 620-30, October.
  8. Gwilym Pryce & Margaret Keoghan, 2002. "Unemployment insurance for mortgage borrowers: is it viable and does it cover those most in need?," European Journal of Housing Policy, Taylor and Francis Journals, vol. 2(1), pages 87-114, April.
  9. Donald R. Haurin & Patric H. Hendershott & Susan M. Wachter, 1996. "Borrowing Constraints and the Tenure Choice of Young Households," NBER Working Papers 5630, National Bureau of Economic Research, Inc.
  10. Luis Diaz-Serrano & Joop Hartog & Helena Skyt Nielsen, 2008. "Compensating Wage Differentials for Schooling Risk in Denmark," Scandinavian Journal of Economics, Wiley Blackwell, vol. 110(4), pages 711-731, December.
  11. DeSalvo, Joseph S. & Eeckhoudt, Louis R., 1982. "Household behavior under income uncertainty in a monocentric urban area," Journal of Urban Economics, Elsevier, vol. 11(1), pages 98-111, January.
  12. Ross, Stephen L. & Tootell, Geoffrey M. B., 2004. "Redlining, the Community Reinvestment Act, and private mortgage insurance," Journal of Urban Economics, Elsevier, vol. 55(2), pages 278-297, March.
  13. Robst, John & Deitz, Richard & McGoldrick, KimMarie, 1999. "Income variability, uncertainty and housing tenure choice1," Regional Science and Urban Economics, Elsevier, vol. 29(2), pages 219-229, March.
  14. Haurin Donald R. & Hendershott Patric H. & Kim Dongwook, 1994. "Housing Decisions of American Youth," Journal of Urban Economics, Elsevier, vol. 35(1), pages 28-45, January.
  15. Ortalo-Magne, Francois & Rady, Sven, 2002. "Tenure choice and the riskiness of non-housing consumption," Journal of Housing Economics, Elsevier, vol. 11(3), pages 266-279, September.
  16. Joop Hartog & Erik Plug & Luis Diaz Serrano & Jose Vieira, 2003. "Risk compensation in wages – a replication," Empirical Economics, Springer, vol. 28(3), pages 639-647, July.
  17. Hartog, Joop & Ferrer-i-Carbonell, Ada & Jonker, Nicole, 2002. "Linking Measured Risk Aversion to Individual Characteristics," Kyklos, Wiley Blackwell, vol. 55(1), pages 3-26.
  18. Linneman, Peter & Megbolugbe, Isaac F. & Wachter, Susan M. & Cho, Man, 1997. "Do Borrowing Constraints Change U.S. Homeownership Rates?," Journal of Housing Economics, Elsevier, vol. 6(4), pages 318-333, December.
  19. 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.
  20. Diaz-Serrano, Luis, 2005. "Labor income uncertainty, skewness and homeownership: A panel data study for Germany and Spain," Journal of Urban Economics, Elsevier, vol. 58(1), pages 156-176, July.
  21. Haurin, Donald R. & Gill, H. Leroy, 1987. "Effects of income variability on the demand for owner-occupied housing," Journal of Urban Economics, Elsevier, vol. 22(2), pages 136-150, September.
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