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Homeownership Inequality and the Access to Credit Markets. Can Credit Availability Explain Cross-country Differences in the Inequality of Homeownership across Income of Young Households?

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  • Eva Sierminska
  • Alena Bicáková

Abstract

This paper focuses on the cross-country differences in homeownership rates and the extent this variation can be explained by differences in the degree of financial development of the mortgage market. Expecting that home ownership among the young is mostly driven by their ability to borrow (against their future income) to buy their homes we focus on households 18 to 40 years of age. We use the newly developed Luxembourg Wealth Study and focus on five countries: Finland, Germany, Italy, the UK and the US. We find that aside from Italy, homeownership rates and inequality in the four countries more or less correspond to their mortgage take up rates and its distribution across income, reflecting the different degree of size and development of their respective mortgage markets. In Italy, however, alternative ways of financing a home such as family transfers substitute the limited mortgage availability and take up rates. The mortgage market in the UK is the most open (in terms of mortgage take up) and the most equal (in terms of the distribution of mortgage take-up across household income deciles), which leads to the highest and most equally distributed homeownership in this country as well. The mortgage market in Germany is on the other side of the spectrum with very low mortgage take-up rates and strong dependence of homeownership and mortgage take up on household income (high homeownership/mortgage income inequality). Finland and the US are in-between.Counterfactual predictions suggest that although household characteristics play some role in explaining the observed (and predicted) variation in home ownership rates across the five countries, it is mostly the country specific effects of these characteristics determined by the institutional environment as well as the functioning of the housing and mortgage markets that drive the main result. We conclude that in the absence of alternative sources, mortgage availability is the main determinant of home ownership across countries and also across income deciles within countries.

Suggested Citation

  • Eva Sierminska & Alena Bicáková, 2007. "Homeownership Inequality and the Access to Credit Markets. Can Credit Availability Explain Cross-country Differences in the Inequality of Homeownership across Income of Young Households?," LWS Working papers 5, LIS Cross-National Data Center in Luxembourg.
    • Handle: RePEc:lis:lwswps:5
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    1. Bönke, Timm & Grabka, Markus M. & Schröder, Carsten & Wolff, Edward N., 2020. "A Head-to-Head Comparison of Augmented Wealth in Germany and the United States," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 122(3), pages 1140-1180.
    2. Serena Trucchi, 2011. "How credit markets affect homeownership: an explanation based on differences between Italian regions," CeRP Working Papers 122, Center for Research on Pensions and Welfare Policies, Turin (Italy).

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