Working Paper: NBER ID: w19798
Authors: Hyunsoo Choi; Harrison Hong; Jeffrey Kubik; Jeffrey P. Thompson
Abstract: Using data on household portfolios and mortgage originations, we find that households residing in a city with few publicly traded firms headquartered there are more likely to own an investment home nearby. Households in these areas are also less likely to own stocks. This only-game-in-town effect is more pronounced for households living in high credit quality areas, who can access financing to afford a second home. This effect also becomes pronounced for households living in low credit quality areas after 2002 when securitization made it easier for these households to buy second homes. Cities with few local stocks have in equilibrium higher price-to-rent ratios, making it more attractive to rent, and lower (primary residence) homeownership rates.
Keywords: Investment Homes; Household Portfolios; Local Bias; Publicly Traded Firms; Credit Quality
JEL Codes: G02; G11; G12; R21; R3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| local stock availability (L81) | investment home ownership (R21) |
| ratio of firms to income (E25) | investment home ownership (R21) |
| high credit quality areas (F34) | investment home ownership (R21) |
| securitization improvement (G24) | investment home ownership (R21) |
| local stocks presence (R53) | investment home ownership (R21) |