IDEAS home Printed from https://ideas.repec.org/a/bla/reesec/v14y1986i3p385-405.html
   My bibliography  Save this article

The Investment in Housing As a Forward Market Transaction: Implications for Tenure Choice and Portfolio Selection

Author

Listed:
  • Jean‐Claude Bosch
  • James R. Morris
  • Steve B. Wyatt

Abstract

A model of tenure choice is presented which treats the benefits and costs of homeownership from a theory of finance perspective. The incremental benefits from homeownership over renting housing services are from two sources: protection against rental price risk (a forward transaction in the housing market) and from a possible capital gain from the eventual sale of a house (substitutes for portfolio investment). The cost of these benefits is higher initial outlay on housing, which reduces the funds available for portfolio investments. The comparative statics of this model is presented. It is shown that rental risk and portfolio risk add to the value of homeownership. Since homeownership is a partial substitute for portfolio investment, it is shown that the lower the covariance between portfolio returns and future home prices the more valuable is homeownership. In the presence of differential borrowing opportunities it is shown that the leverage available to housing significantly increases the value of homeownership.

Suggested Citation

  • Jean‐Claude Bosch & James R. Morris & Steve B. Wyatt, 1986. "The Investment in Housing As a Forward Market Transaction: Implications for Tenure Choice and Portfolio Selection," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 14(3), pages 385-405, September.
    • Handle: RePEc:bla:reesec:v:14:y:1986:i:3:p:385-405
    DOI: 10.1111/1540-6229.00393
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/1540-6229.00393
    Download Restriction: no
    File URL: https://libkey.io/10.1111/1540-6229.00393?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Housing Is An Investment
      by Adam Ozimek in Modeled Behavior on 2009-12-08 19:47:56

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:reesec:v:14:y:1986:i:3:p:385-405. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://edirc.repec.org/data/areueea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.