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Housing Habits and Their Implications for Life-Cycle Consumption and Investment
[The evolution of homeownership rates in selected OECD countries: demographic and public policy influences]

Author

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  • Holger Kraft
  • Claus Munk
  • Sebastian Wagner

Abstract

We solve a rich life-cycle model of household decisions involving consumption of perishable goods and housing services, habit formation for housing consumption, stochastic labor income, stochastic house prices, home renting and owning, stock investments, and portfolio constraints. In line with empirical observations, the optimal decisions involve (i) stock investments that are low or zero for many young agents and then gradually increasing over life, (ii) an age- and wealth-dependent housing expenditure share, (iii) non-housing consumption being significantly more sensitive to wealth and income shocks than housing consumption, and (iv) non-housing consumption being hump-shaped over life.

Suggested Citation

  • Holger Kraft & Claus Munk & Sebastian Wagner, 2018. "Housing Habits and Their Implications for Life-Cycle Consumption and Investment [The evolution of homeownership rates in selected OECD countries: demographic and public policy influences]," Review of Finance, European Finance Association, vol. 22(5), pages 1737-1762.
    • Handle: RePEc:oup:revfin:v:22:y:2018:i:5:p:1737-1762.
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    More about this item

    Keywords

    Household decisions; Stock investments; Housing expenditure share; Consumption hump; Habit formation;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand

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