Working Paper: NBER ID: w1168
Authors: Harvey S. Rosen; Kenneth T. Rosen; Douglas Holtz-Eakin
Abstract: Modern empirical work on the choice between renting and owning focuses on the concept of the "user cost" of housing, which integrates into a single measure the various components of housing costs. The standard approach implicitly assumes that households know the user cost of housing with certainty. However, the ex post user cost measure exhibits substantial variability over time, and it is highly unlikely that individuals believe themselves able to forecast these fluctuations with certainty. In this paper, we construct and estimate a model of the tenure choice that explicitly allows for the effects of uncertainty. The results suggest that previous work which ignored uncertainty may have overstated the effects of the income tax system upon the tenure choice.
Keywords: Housing tenure; Price uncertainty; Income tax; Homeownership
JEL Codes: H24; R21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| income tax provisions (H24) | homeownership (R21) |
| taxing housing capital gains (H24) | homeownership (R21) |
| price uncertainty (D89) | percentage of owner-occupiers (R21) |
| price uncertainty (D89) | homeownership rates (R21) |