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Borrowing Constraints and the Tenure Choice of Young Households


  • Donald R. Haurin
  • Patric H. Hendershott
  • Susan M. Wachter


In this paper we analyze the factors that affect the tenure choice of young adults, highlighting the impact of mortgage lender imposed borrowing constraints. The data set is a panel of youth age 20-33 for the years 1985-90. Our methods differ from most prior studies in many ways including consideration of possible sample selection bias, a richer model of the stochastic error structure, better measurement of which households are bound by borrowing constraints, and a fuller consideration of the endogeneity of wealth and income. Once all changes are implemented, we find ownership tendencies to be quite sensitive to economic variables. Specifically, potential earnings, the relative cost of owning a home, and especially borrowing constraints affect the tendency to own a home. In our sample of youth, 37% of households are constrained even after choosing their loan-to-value ratio to minimize the impact of the separate wealth and income requirements. The constraints reduce the probability of ownership of these households by 10 to 20 percentage points (a third to a half) depending on the particular characteristics of the household.

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  • Donald R. Haurin & Patric H. Hendershott & Susan M. Wachter, 1996. "Borrowing Constraints and the Tenure Choice of Young Households," NBER Working Papers 5630, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:5630
    Note: PE

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    References listed on IDEAS

    1. Lawrence D. Jones, 1989. "Current Wealth and Tenure Choice," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 17(1), pages 17-40.
    2. Peter M. Zorn, 1989. "Mobility-Tenure Decisions and Financial Credit: Do Mortgage Qualification Requirements Constrain Homeownership?," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 17(1), pages 1-16.
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    JEL classification:

    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand


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