Date of this Version
The Quarterly Journal of Economics
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.
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.
house prices, house price risk, rent risk, housing tenure choice, household risk management, aging and housing wealth
Sinai, T., & Souleles, N. S. (2005). Owner-Occupied Housing as a Hedge Against Rent Risk. The Quarterly Journal of Economics, 120 (2), 763-789. http://dx.doi.org/10.1093/qje/120.2.763
Date Posted: 27 November 2017
This document has been peer reviewed.