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Consumption and Investment Motives in Housing Wealth Accumulation : a French Study

  • Arrondel, L.
  • Lefebvre, B.

The dual motives of housing behavior, consumption and investment make the analysis of housing purchases quite difficult. Nevertheless, it is better to refer to a model that keeps the two dimensional aspect of housing (Henderson and Ioannides [16]). In the absence of institutional considerations, this model predicts that it is the difference between the investment demand for housing and the consumption one that explains decisions to purchasse dwellings for owner occupation and for renting out. We have tested the model on the French data of the survey "Actifs Financiers 1992". Results show that the difference between the two demands cannot in itself explain housing purchases. Transaction costs, the tax system, the public aid policies for home ownership, and other market imperfections are inadequately dealt with. Moreover, estimation and identification of housing demand functions, both for consumption and investment, tend to show that there are portfolio motives in the factors that determine housing demand for owner occupation. French households behave in a different way than US households : for them, the difference between the two demands for housing explains behavior and consumption motives dominate primary residence purchase (Ionnides and Rosenthal [20]).

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Paper provided by DELTA (Ecole normale supérieure) in its series DELTA Working Papers with number 2000-14.

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Length: 20 pages
Date of creation: 2000
Date of revision:
Publication status: Published in Journal of Urban Economics, 2001, 50, pp. 112-137
Handle: RePEc:del:abcdef:2000-14
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  1. André Masson & Luc Arrondel, 1996. "Gestion du risque et comportements patrimoniaux," Économie et Statistique, Programme National Persée, vol. 296(1), pages 63-89.
  2. Paxson, Christina, 1990. "Borrowing Constraints and Portfolio Choice," The Quarterly Journal of Economics, MIT Press, vol. 105(2), pages 535-43, May.
  3. Sandmo, Agnar, 1969. "Capital Risk, Consumption, and Portfolio Choice," Econometrica, Econometric Society, vol. 37(4), pages 586-99, October.
  4. Kimball, Miles S, 1993. "Standard Risk Aversion," Econometrica, Econometric Society, vol. 61(3), pages 589-611, May.
  5. Brueckner, Jan K, 1997. "Consumption and Investment Motives and the Portfolio Choices of Homeowners," The Journal of Real Estate Finance and Economics, Springer, vol. 15(2), pages 159-80, October.
  6. Brueckner, Jan K., 1986. "The downpayment constraint and housing tenure choice : A simplified exposition," Regional Science and Urban Economics, Elsevier, vol. 16(4), pages 519-525, November.
  7. Hausman, Jerry A, 1978. "Specification Tests in Econometrics," Econometrica, Econometric Society, vol. 46(6), pages 1251-71, November.
  8. Smith, Lawrence B & Rosen, Kenneth T & Fallis, George, 1988. "Recent Developments in Economic Models of Housing Markets," Journal of Economic Literature, American Economic Association, vol. 26(1), pages 29-64, March.
  9. Zvi Bodie & Robert C. Merton & William F. Samuelson, 1992. "Labor Supply Flexibility and Portfolio Choice in a Life-Cycle Model," NBER Working Papers 3954, National Bureau of Economic Research, Inc.
  10. King, Mervyn A. & Leape, Jonathan I., 1998. "Wealth and portfolio composition: Theory and evidence," Journal of Public Economics, Elsevier, vol. 69(2), pages 155-193, June.
  11. 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.
  12. Fu, Yuming, 1991. "A Model of Housing Tenure Choice: Comment," American Economic Review, American Economic Association, vol. 81(1), pages 381-83, March.
  13. Henderson, J. Vernon & Ioannides, Yannis M., 1987. "Owner occupancy: Investment vs consumption demand," Journal of Urban Economics, Elsevier, vol. 21(2), pages 228-241, March.
  14. Artle, Roland & Varaiya, Pravin, 1978. "Life cycle consumption and homeownership," Journal of Economic Theory, Elsevier, vol. 18(1), pages 38-58, June.
  15. Heckman, James J, 1979. "Sample Selection Bias as a Specification Error," Econometrica, Econometric Society, vol. 47(1), pages 153-61, January.
  16. Luc ARRONDEL & André MASSON, 1990. "Hypothèse du cycle de vie, diversification et composition du patrimoine: France 1986," Annales d'Economie et de Statistique, ENSAE, issue 17, pages 1-45.
  17. Luc Arrondel, 1996. "Patrimoine des ménages : toujours le logement, mais aussi les actifs de précaution," Économie et Statistique, Programme National Persée, vol. 296(1), pages 33-62.
  18. James R. Follain & David C. Ling, 1988. "Another Look at Tenure Choice, Inflation, and Taxes," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 16(3), pages 207-229.
  19. Henderson, J Vernon & Ioannides, Yannis M, 1983. "A Model of Housing Tenure Choice," American Economic Review, American Economic Association, vol. 73(1), pages 98-113, March.
  20. Ioannides, Yannis M & Rosenthal, Stuart S, 1994. "Estimating the Consumption and Investment Demands for Housing and Their Effect on Housing Tenure Status," The Review of Economics and Statistics, MIT Press, vol. 76(1), pages 127-41, February.
  21. Ioannides, Yannis M., 1989. "Housing, other real estate, and wealth portfolios : An empirical investigation based on the 1983 Survey of Consumer Finances," Regional Science and Urban Economics, Elsevier, vol. 19(2), pages 259-280, May.
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