Economics at your fingertips  

Housing Ownership Decision Making in the Framework of Household Portfolio Choice

Eli Beracha (), Alexandre Skiba () and Ken H Johnson ()
Additional contact information
Eli Beracha: Florida International University
Alexandre Skiba: University of Wyoming
Ken H Johnson: Florida Atlantic University

Journal of Real Estate Research, 2017, vol. 39, issue 2, 263_288

Abstract: While it is well documented that homeowners, on average, have greater total wealth than renters, it is not clear that homeownership is one of the main causes for this wealth differential. A recent study by Beracha and Johnson (2012) shows that, historically, renting creates greater wealth than owning a home when a fair comparison is conducted. Thus, it is possible that homeowners are wealthier than renters not because of homeownership, but rather in spite of it. A notable and major drawback with Beracha and Johnson's study, however, is that it considers the wealth created from homeownership in isolation rather than as a part of a household's total portfolio. One of the first lessons of finance (and asset allocation, in particular), however, is that we should care about the overall portfolio performance rather than the performance of an individual asset class within the portfolio. This manuscript addresses this drawback and considers the buy versus rent decision in the framework of household portfolio choice. This allows us to determine whether owning a home increases the utility of households by improving the performance of their portfolio compared with households that rent. We determine that while renting is superior to ownership in isolation, homeownership as a part of the household portfolio improves wealth creation on a risk-adjusted basis in many scenarios. The homeownership scenarios that improve portfolio performance, however, suggest significant policy changes that currently favor levered homeownership strategies for households with minimal wealth.

JEL-codes: L85 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3) Track citations by RSS feed

Downloads: (external link) Full text (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Ordering information: This journal article can be ordered from
Diane Quarles American Real Estate Society Manager of Member Services Clemson University Box 341323 Clemson, SC 29634-1323

Access Statistics for this article

Journal of Real Estate Research is currently edited by Dr. Ko Wang

More articles in Journal of Real Estate Research from American Real Estate Society American Real Estate Society Clemson University School of Business & Behavioral Science Department of Finance 401 Sirrine Hall Clemson, SC 29634-1323.
Bibliographic data for series maintained by JRER Graduate Assistant/Webmaster ().

Page updated 2023-05-18
Handle: RePEc:jre:issued:v:39:n:2:2017:p:263_288