Homeownership in household finance
Kim, Hyong Uk
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The US has a relatively high rate of homeownership rate. In this chapter, I describe recent changes (rising) in the homeownership rate in several dimensions. Figure 1-1 shows the homeownership rate in US during the period from 1960 to 2007. Since the government began to adopt policies to promote homeownership during the Great Depression, homeownership in US has been increased. In fact, the rate increased steadily until reaching 64% in 1965. For the next 30 years, the rate was stable around 65% level even with various policies at all levels of government tried to encourage homeownership. However, around 1994, the trend turned upward and the rate reached 69% in 2004. The chapter 1 presents possible explanations for the recent risen homeownership rate starting from analyzing the cost-benefit of owner-occupied housing. After figuring the factors affecting to the homeownership rate, I examine the changes in those factors includes economic factors, government policy, demographic facts. I start from how individual household decide its homeownership to analyzing cost structure of homeowners. The chapter 2 studies the asset allocations of home owners and renters in a life-cycle model with housing and mortgage decisions. Our model has a housing adjustment cost which depends on the remaining mortgage balance, implying that the tenure choice of housing investment matters in explaining the wealth compositions of households across age groups and homeownership status. In addition, we include alternative forms of bequest to the young home buyers, a realistic feature of housing investment. By comparing with data, our simulated model can match quantitatively the hump shape of homeownership and increasing stock holding shares for owners and renters over the life cycle. Our results suggest that the path-dependent housing adjustment cost and a partial subsidy from parents to young home buyers play crucial roles in explaining households' asset and housing choices.