Working Paper: NBER ID: w3310
Authors: Donald R. Haurin; Patric H. Hendershott; Dongwook Kim
Abstract: While there seems to be no end to estimates of housing tenure determinants, prior studies have not accounted for the simultaneity of tenure choice with household formation, labor supply or the marriage decision. Our estimates are superior to those in the literature both because we address these issues and because we better measure the cost of owning relative to renting. Accounting for simultaneity with the household formation and labor supply decisions matter. Using a household's predicted wage rate rather than its observed income doubles the response of tenure choice to the price of owning relative to renting. Including household formation selectivity correction variables cuts the response to tenure choice to the predicted wage by 25 percent. Moreover, the impact of variations in demographic variables on tenure choice is sharply reduced after correcting for selectivity bias.
Keywords: housing tenure; household formation; labor supply
JEL Codes: R21; J12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| simultaneity and selectivity bias (C34) | tenure choice outcomes (R21) |
| predicted wage rate (J31) | response of tenure choice to the price of owning (R21) |
| household formation selectivity correction variables (C21) | response to tenure choice to the predicted wage (J31) |
| demographic variables (J10) | tenure choice (R21) |
| marital status (J12) | housing choices (R21) |