Why Are Homeownership Rates So Different Across Europe?

Homeownership rates vary considerable across Europe; both across and within countries. Homeownership propensities are high in Southern Europe, in the UK and in Ireland and comparably low in the Alpine countries. Within each country households are much more likely to own outside of large cities. Given the political importance of housing (cost) and homeownership, it is perhaps surprising that to date there is virtually no empirical evidence that sheds light on the puzzle why homeownership rates differ so vastly across Europe. In this paper I exploit the restricted version of the European Community Household Panel (ECHP) to explain household- and regional differences in homeownership propensities and changes over time. I find that the housing stock (i.e., the housing type), which determines the relative landlord production efficiency, is the most important driver of the spatial differences. Differences in tax policies matter as well. The non-taxation of imputed rents for principally owner-occupied dwellings (POOD) has the strongest positive effect on homeownership rates (+3.9%), while the deductibility of mortgage interest for POOD and capital gains taxes that favour POOD have a more moderate impact (+1.9% and +0.5% respectively). Consistent with theory, country differences in housing transaction costs and the expected duration in the property increase homeownership propensities but the effects are rather small quantitatively. While individual socio-economic characteristics are important determinants of individual housing tenure choices, regional differences in the socio-economic composition cannot explain much of the spatial variation in homeownership across Europe.