Real Estate Papers

Document Type

Journal Article

Date of this Version

2005

Publication Source

The Quarterly Journal of Economics

Volume

120

Issue

2

Start Page

763

Last Page

789

DOI

10.1093/qje/120.2.763

Abstract

The conventional wisdom that homeownership is very risky ignores the fact that the alternative, renting, is also risky. Owning a house provides a hedge against fluctuations in housing costs, but in turn introduces asset price risk. In a simple model of tenure choice with endogenous house prices, we show that the net risk of owning declines with a household's expected horizon in its house and with the correlation in housing costs in future locations. Empirically, we find that both house prices, relative to rents, and the probability of homeownership increase with net rent risk.

Copyright/Permission Statement

This is a pre-copyedited, author-produced PDF of an article accepted for publication in The Quarterly Journal of Economics following peer review. The version of record is available online at: http://qje.oxfordjournals.org/content/120/2/763.abstract.

Keywords

house prices, house price risk, rent risk, housing tenure choice, household risk management, aging and housing wealth

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Date Posted: 27 November 2017

This document has been peer reviewed.