Skill-Biased Technological Change and Homeownership

Alexis Anagnostopoulos, Orhan Atesagaoglu and Eva Carceles-Poveda

No 12-09, Department of Economics Working Papers from Stony Brook University, Department of Economics

Abstract: In the United States, the residential housing market went through important changes over the period from the 1970s to the mid-1990s. Although the aggregate homeownership rate was relatively constant during that period, the distribution of homeownership rates by age changed in remarkable ways. While younger households saw substantial declines in homeownership rates, the opposite happened for older households. In this paper, we argue that the skill-biased technological change (SBTC) that began during the 1970s has been an important factor behind the observed change in the distribution of homeownership rates by age. We build a life cycle model in which skills are accumulated on-the-job through experience: learning by doing. Early in life, households have lower levels of skills and therefore lower earnings. SBTC increases the returns to skill, widening the wage gap between young and old ages. As a consequence, it takes more time for young households to become homeowners given frictions in financial markets (e.g. downpayment requirements) and housing markets (e.g. large and indivisible houses), in line with consumption smoothing behaviour. On the other hand, older households that could not afford a house before may now become homeowners, given higher returns to skill. Our analysis confirms this conjecture, namely, that SBTC shifts the distribution of homeownership from the young to the old.

Keywords: Homeownership; Incomplete Markets; Skill-Biased Technological Change. (search for similar items in EconPapers)
JEL-codes: E2 (search for similar items in EconPapers)
Date: 2012-09
New Economics Papers: this item is included in nep-mac and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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http://www.stonybrook.edu/commcms/economics/resear ... 12/housing121007.pdf First version, 2012 (application/pdf)

Related works:
Journal Article: Skill-biased technological change and homeownership (2013)
Working Paper: Skill-Biased Technological Change and Homeownership (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:nys:sunysb:12-09

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