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Housing Wealth Across Countries: The Role of Expectations, Institutions and Preferences

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Listed:
  • Julia Le Blanc
  • Jiri Slacalek
  • Matthew N. White

Abstract

Homeownership rates and holdings of housing wealth differ immensely across countries. We specify and estimate a life cycle model with risky labor income and house prices in which households face a discrete–continuous choice between renting and owning a house, whose sale is subject to transaction costs. The model allows us to quantify three groups of explanatory factors for long-run, structural differences in the extensive and intensive margins of housing: the homeownership rate and the value of housing wealth of homeowners. First, in line with survey evidence, we allow for differences in expectations of house prices. Second, countries differ in the institutional set-up of the housing market: maximum loan–value ratio and costs of renting, maintaining, and selling a house. Third, we allow for differences in household preferences: the dispersion in discount factors, the share of housing expenditure, and the bequest motive. We estimate the model using micro data from five large economies and provide a decomposition to interpret what drives the cross-country differences in housing wealth. We find that all three groups of factors matter, although preferences less so. Differences in homeownership rates are strongly affected by (i) house price beliefs and (ii) the rental wedge, the difference between rents and maintenance costs, which reflects the quality of the rental market. Differences in the value of housing wealth are substantially driven by housing maintenance costs.

Suggested Citation

  • Julia Le Blanc & Jiri Slacalek & Matthew N. White, 2025. "Housing Wealth Across Countries: The Role of Expectations, Institutions and Preferences," CESifo Working Paper Series 11621, CESifo.
  • Handle: RePEc:ces:ceswps:_11621
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    References listed on IDEAS

    as
    1. Jonathan Heathcote & Fabrizio Perri & Giovanni L. Violante, 2010. "Unequal We Stand: An Empirical Analysis of Economic Inequality in the United States: 1967-2006," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 13(1), pages 15-51, January.
    2. Kholodilin, Konstantin A. & Kohl, Sebastian & Korzhenevych, Artem & Pfeiffer, Linus, 2023. "The hidden homeownership welfare state: an international long-term perspective on the tax treatment of homeowners," Journal of Public Policy, Cambridge University Press, vol. 43(1), pages 86-114, March.
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    7. Patrick Bajari & Phoebe Chan & Dirk Krueger & Daniel Miller, 2013. "A Dynamic Model Of Housing Demand: Estimation And Policy Implications," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 54(2), pages 409-442, May.
    8. Haoyang Liu & Christopher Palmer, 2021. "Are Stated Expectations Actual Beliefs? New Evidence for the Beliefs Channel of Investment Demand," NBER Working Papers 28926, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    housing; homeownership; house price expectations; housing market institutions; cross-country comparisons;
    All these keywords.

    JEL classification:

    • D15 - Microeconomics - - Household Behavior - - - Intertemporal Household Choice; Life Cycle Models and Saving
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth

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