A Tenure Choice Model Incorporating Age, Period, and Cohort Effects

Abstract

Individual housing consumption patterns are generally examined in the view of life cycle based on age. But each generation born in different time periods experiences different socioeconomic conditions during their lives. These differences in their experiences could form different preferences in housing consumption patterns. As a main theme of this research, homeownership rate of one generation may differ from that of the other generation even when they reach the same age group. This study develops a tenure choice model decomposing age effect, birth cohort effect and period effect using a long-term unbalanced panel data. The empirical results show that the older generations(born before 1954) than baby boomers showed a higher owneroccupancy rate than the later generations(born after 1955) including the baby boomers. The result implies that the owner-occupancy rate of the housing market in the future would decline slowly as the baby boom generation begins to form the main aged group and the portion of the older generations are shrinking.