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The dynamics of housing tenure choice: Lessons from Germany and the United States

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  • Boehm, Thomas P.
  • Schlottmann, Alan M.

Abstract

This paper investigates the likelihood and timing of housing tenure choice dynamics including both the initial transition to homeownership, and possible transitions back to rental tenure and to an additional owned home. This is done across the German Socio-Economic Panel (GSOEP) and the Panel Study of Income Dynamics (PSID). Further, housing price data is added for both countries. For the US, data from the Federal Housing Finance Agency (FHFA) and Census data were used construct measures of house price appreciation and the relative cost of owning to renting. For Germany, proprietary data from BulwienGesa AG was used to construct comparable indices. Observed differentials in tenure transitions appear to be consistent with the differences in housing and mortgage market conditions, as well as the tax treatment of owned homes across the two nations. In particular, while there is substantial house price appreciation in the US, on average house prices fall over the same period in Germany. In addition, mortgage interest is not tax deductible in Germany, alternative mortgage options available in the US are not prevalent there, and down payment requirements are much greater. Consequently, German households have a much lower probability of homeownership and there is only a small likelihood of those who initially achieve homeownership returning to rental tenure or moving to another owned home. In contrast, households in the United States have a very high likelihood of homeownership, but the housing market appears much more volatile with a high likelihood that households will return to rental tenure, and subsequently achieve homeownership for a second time during the period of observation.

Suggested Citation

  • Boehm, Thomas P. & Schlottmann, Alan M., 2014. "The dynamics of housing tenure choice: Lessons from Germany and the United States," Journal of Housing Economics, Elsevier, vol. 25(C), pages 1-19.
    • Handle: RePEc:eee:jhouse:v:25:y:2014:i:c:p:1-19
    DOI: 10.1016/j.jhe.2014.01.006
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    References listed on IDEAS

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    2. Goodness C. Aye & Rangan Gupta, 2019. "Macroeconomic Uncertainty And The Comovement In Buying Versus Renting In The Usa," Advances in Decision Sciences, Asia University, Taiwan, vol. 23(3), pages 93-121, September.
    3. Chu-Chia Lin & Po-Sheng Lai, 2018. "An Empirical Study on the Impact of Tenure Choice on Saving for Chinese Households," International Real Estate Review, Global Social Science Institute, vol. 21(2), pages 275-294.
    4. Mauro Mastrogiacomo & Cindy Biesenbeek, 2022. "No pension and no house? The effect of LTV limits on the housing wealth accumulation of self-employed," Working Papers 746, DNB.
    5. Goodness C. Aye & Rangan Gupta, 2018. "Macroeconomic Uncertainty and the Comovement in Buying versus Renting in the United States," Working Papers 201832, University of Pretoria, Department of Economics.
    6. Chenzi Yang & Fernando Moreira & Thomas Welsh Archibald, 2023. "Community banks' capital requirements and regional housing tenure," Australian Economic Papers, Wiley Blackwell, vol. 62(4), pages 723-746, December.
    7. Hirota, Shinichi & Suzuki-Löffelholz, Kumi & Udagawa, Daisuke, 2020. "Does owners’ purchase price affect rent offered? Experimental evidence," Journal of Behavioral and Experimental Finance, Elsevier, vol. 25(C).
    8. Aaron Hedlund, 2018. "Down Payments and the Homeownership Dream: Not Such a Barrier After All?," Working Papers 1806, Department of Economics, University of Missouri.
    9. Cindy Biesenbeek & Mauro Mastrogiacomo & Rob Alessie & Jakob de Haan, 2022. "The effect of introducing a Loan-to-Value limit on home ownership," Working Papers 741, DNB.
    10. Bhat, Chandra R., 2015. "A comprehensive dwelling unit choice model accommodating psychological constructs within a search strategy for consideration set formation," Transportation Research Part B: Methodological, Elsevier, vol. 79(C), pages 161-188.
    11. Munyanyi, Musharavati Ephraim & Mintah, Kwabena & Baako, Kingsley Tetteh, 2021. "Energy-related deprivation and housing tenure transitions," Energy Economics, Elsevier, vol. 98(C).
    12. Hiller, Norbert & Lerbs, Oliver W., 2016. "Aging and urban house prices," Regional Science and Urban Economics, Elsevier, vol. 60(C), pages 276-291.

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