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Homeownership and portfolio choice over the generations

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  • Paz-Pardo, Gonzalo

Abstract

Earnings are riskier and more unequal for households born in the 1960s and 1980s than for those born in the 1940s. Despite improvements in financial conditions, younger generations are less likely to be living in their own homes than older generations at the same age. By using a life-cycle model with housing and portfolio choice that includes flexible earnings risk and aggregate asset price risk, I show that changes in earnings dynamics account for a large part of the reduction in homeownership across generations. Lower-income households find it harder to buy housing, and as a result accumulate less wealth. JEL Classification: D31, E21, E24, G11, J31

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  • Paz-Pardo, Gonzalo, 2021. "Homeownership and portfolio choice over the generations," Working Paper Series 2522, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20212522
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    Cited by:

    1. David Sturrock, 2023. "Wealth and welfare across generations," IFS Working Papers W23/15, Institute for Fiscal Studies.
    2. Adrian Carro, 2022. "Could Spain be less different? Exploring the effects of macroprudential policy on the house price cycle," Working Papers 2230, Banco de España.
    3. Dirección General de Economía y Estadística, 2020. "El mercado de la vivienda en España entre 2014 y 2019," Occasional Papers 2013, Banco de España.
    4. Paz-Pardo, Gonzalo & Castellanos, Juan & Hannon, Andrew, 2024. "The aggregate and distributional implications of credit shocks on housing and rental markets," Working Paper Series 2977, European Central Bank.
    5. Clodomiro Ferreira & Julio Gálvez & Myroslav Pidkuyko, 2023. "Housing Tenure, Consumption and Household Debt: Life-Cycle Dynamics During a Housing Bust in Spain," Working Papers 285, Red Nacional de Investigadores en Economía (RedNIE).
    6. Julio Gálvez & Gonzalo Paz-Pardo, 2022. "Richer earnings dynamics, consumption and portfolio choice over the life cycle," Working Papers 2241, Banco de España.
    7. Paz-Pardo, Gonzalo, 2022. "Younger generations and the lost dream of home ownership," Research Bulletin, European Central Bank, vol. 91.
    8. Francesco Chiocchio, 2024. "Why Not Tax It? The Effects of Property Taxes on House Price and Homeownership," Working Papers wp2024_2404, CEMFI.
    9. Carro, Adrian, 2023. "Taming the housing roller coaster: The impact of macroprudential policy on the house price cycle," Journal of Economic Dynamics and Control, Elsevier, vol. 156(C).
    10. Olivér Kovács, 2022. "Zombification and Industry 4.0—Directional Financialisation against Doomed Industrial Revolution," Social Sciences, MDPI, vol. 11(5), pages 1-24, May.

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    More about this item

    Keywords

    earnings risk; housing demand; intergenerational inequality; wealth accumulation;
    All these keywords.

    JEL classification:

    • D15 - Microeconomics - - Household Behavior - - - Intertemporal Household Choice; Life Cycle Models and Saving
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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