Earnings Uncertainty, Risk-Aversion and Homeownership
In this paper we investigate the effect of labour income uncertainty on the probability of homeownership in Germany and Spain. This study is motivated by two facts. Firstly, theoretical models tend to provide ambiguous results in this issue. Secondly, there is limited previous empirical evidence and the existing focuses exclusively on the US housing market. We claim that more international evidence is necessary in order to disentangle this puzzle. We develop a simple theoretical formula that highlights the pivotal role of risk attitudes in the housing tenure decisions that also allow us to introduce the concept of "skewness affection" as a relevant phenomenon. To carry out this test we propose an income uncertainty measure based on panel data labour income equations. We observe that households facing increasing income uncertainty display preference for renting while those located in a positively skewed income distribution show a greater propensity for homeownership. Income uncertainty analysis in housing decisions has important implications for the design of public housing policies and also for the design of private mortgage insurance products.
|Date of creation:||2003|
|Contact details of provider:|| Postal: Maynooth, Co. Kildare|
Web page: http://www.maynoothuniversity.ie/economics-finance-and-accounting
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- Diaz-Serrano, Luis & Hartog, Joop & Nielsen, Helena Skyt, 2003. "Compensating Wage Differentials for Schooling Risk in Denmark," IZA Discussion Papers 963, Institute for the Study of Labor (IZA).
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- Chung, Eui-Chul & Haurin, Donald R., 2002. "Housing choices and uncertainty: the impact of stochastic events," Journal of Urban Economics, Elsevier, vol. 52(2), pages 193-216, September.
- 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.
- Rosen, Harvey S & Rosen, Kenneth T & Holtz-Eakin, Douglas, 1984. "Housing Tenure, Uncertainty, and Taxation," The Review of Economics and Statistics, MIT Press, vol. 66(3), pages 405-416, August.
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- Fu, Yuming, 1995. "Uncertainty, liquidity, and housing choices," Regional Science and Urban Economics, Elsevier, vol. 25(2), pages 223-236, April. Full references (including those not matched with items on IDEAS)
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