Working Paper: NBER ID: w21255
Authors: James Banks; Richard Blundell; Zo Oldfield; James P. Smith
Abstract: This paper investigates the effects of spatial housing price risk on housing choices over the first half of the life-cycle. Housing price risk can be substantial but, unlike other risky assets which people can avoid, most people want to eventually own their home thereby creating an insurance demand early in life. Our contribution focuses on the importance of home ownership as a hedge against future house price risk for individuals that plan to move up the housing ladder. We use a simple theoretical model to show that people living in places with higher housing price risk should own their first home at a younger age, live in larger homes, and be less likely to refinance. These predictions are shown to hold using panel data from the United States and United Kingdom.
Keywords: Housing; Price Volatility; Home Ownership
JEL Codes: D12; D91
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| housing price volatility (R31) | younger age of home ownership (R21) |
| housing price volatility (R31) | lower refinancing rates (G21) |
| housing price volatility (R31) | more housing consumption (R21) |
| younger age of home ownership (R21) | higher home ownership rates (R21) |
| lower refinancing rates (G21) | maintaining insurance role of home ownership (G52) |
| more housing consumption (R21) | higher number of rooms owned (R21) |
| more housing consumption (R21) | higher gross value of homes (R21) |