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The paradox of the Joneses: superstar houses andmortgage frenzy in suburban America

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  • Bellet, Clement
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    Despite a major upscaling of suburban houses over the last decades, house satisfaction has remained steady in the United States. I show that upward comparison in size can explain this paradox, as top housing size mirrored the U-shaped pattern of top income inequality. Combining data from the American Housing Survey from 1984 to 2009 with an original dataset of three millions suburban houses built between 1920 and 2009, I find that suburban owners who experienced a relative downscaling of their home due to the building of bigger units in their suburb record lower satisfaction and house values. These homeowners are more likely to upscale and subscribe to new loans. Results are robust to household fixed effects and concentrated in counties with lower segregation, suggesting a causal link between inequality and mortgage debt. In the absence of keeping up with the Joneses, I estimate the mortgage debt to income ratio would have been 25 percentage points lower at the eve of the 2008 financial crisis.

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    File URL: http://eprints.lse.ac.uk/69044/
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    Paper provided by London School of Economics and Political Science, LSE Library in its series LSE Research Online Documents on Economics with number 69044.

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    Length: 62 pages
    Date of creation: Jan 2017
    Handle: RePEc:ehl:lserod:69044
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