Optimal Consumption and Portfolio Choices with Risky Housing and Borrowing Constraints

Yao, Rui; Zhang, Harold H.

doi:10.1093/rfs/hhh007

Cited by 531 publications

(410 citation statements)

References 19 publications

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“…This calibration choice is also consistent with the estimates in Sinai and Souleles (2005), who find that the house price-to-rent ratio capitalizes expected future rents, as any other asset. Our solution method and simulation strategy are explained in detail in Appendix D. We must stress that our model is not intended to study household portfolio composition in the presence of housing (see Flavin and Yamashita, 2002;Yao and Zhang, 2005 for such models). Rather, our purpose is to reproduce the homeownership rate in the US so that we can compare the cost of housing services for renters and homeowners and determine if we are accurately measuring the cost of housing services when using a rental equivalence approach.…”

Section: House Pricesmentioning

confidence: 99%

On the user cost and homeownership

Díaz

Luengo‐Prado

2008

Review of Economic Dynamics

116

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This paper studies the differences in the cost of housing services for renters and homeowners and calculates the bias that results when we value owner-occupied housing services using a rental equivalence approach. Our framework is a life-cycle model with endogenous tenure choice with households facing idiosyncratic uninsurable earnings risk and housing price risk. We model houses as illiquid assets that provide collateral for loans. To analyze the impact of preferential housing taxation on the tenure choice and the bias, we consider a tax system that mimics that of the US economy. Namely, owner-occupied housing services are not taxed and mortgage interest payments are deductible. Through simulations, we show that a rental equivalence approach (relative to a user cost approach) overestimates the cost of housing services. The magnitude of the bias is very sensitive to both the income tax rate and the size of adjustment costs in the housing market.JEL classification: E21; C80; E39

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Section: House Pricesmentioning

confidence: 99%

On the user cost and homeownership

Díaz

Luengo‐Prado

2008

Review of Economic Dynamics

116

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“…; see e.g. Cuoco and Liu (2000), Flavin and Yamashita (2002), Faig and Shum (2002), Cocco (2004), Hu (2005) and Yao and Zhang (2005). While these models are much richer than the one we use, none of these papers analyzes the role of trust.…”

Section: Introductionmentioning

confidence: 99%

Trust and the Choice Between Housing and Financial Assets: Evidence from Spanish Households*

El-Attar

Poschke

2011

Review of Finance

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“…Explanatory variables included in the probit model are marital status, sector, industry, age group, gender, country of birth, A-region 25 and education. 26 Estimates from the annual probit regressions on unemployment are reported in Table 5 (for every third year). The coe¢ cients are fairly robust over the years, but there is some time variation.…”

Section: Methodsmentioning

confidence: 99%

“…Tenure choice is also found to be a¤ected by the investment horizon; if a household expects to live in its current home for an extended period of time, or if the covariance between the user cost of a household's current home and future potential homes is high, the household is more likely to become a homeowner. Cocco (2005) and Yao and Zhang (2005) explicitly consider the impact of the covariance between home prices and labor income on portfolio choice. However, both papers use a single population variance-covariance matrix.…”

Section: Related Literaturementioning

confidence: 99%

Housing choices and labor income risk

Jansson

2017

Journal of Urban Economics

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I show that individuals whose unemployment risk tends to increase more when local home prices fall optimally invest less in owner-occupied housing. Using a unique, Swedish register-based database, I …nd that a one standard deviation increase in the covariance between individually estimated unemployment risks and local home prices implies an average increase in the value of households' investments in owner-occupied housing of USD 13,300. Further, I …nd, in line with the predictions of my theoretical model, that same-industry couples rent more often, but, conditional on ownership, invest USD 9,200 more on average in single-family homes than di¤erent-industry couples.JEL classi…cations: D12, D14, R21

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Optimal Consumption and Portfolio Choices with Risky Housing and Borrowing Constraints

Cited by 531 publications

References 19 publications

On the user cost and homeownership

On the user cost and homeownership

Trust and the Choice Between Housing and Financial Assets: Evidence from Spanish Households*

Housing choices and labor income risk

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