Housing and Tax-Deferred Retirement Accounts

Anson Ho () and Jie Zhou

Staff Working Papers from Bank of Canada

Abstract: Assets in tax-deferred retirement accounts (TDA) and housing are two major components of household portfolios. In this paper, we develop a life-cycle model to examine the interaction between households’ use of TDA and their housing decisions. The model generates life-cycle patterns of home ownership and the composition of net worth that are broadly consistent with the data from the Survey of Consumer Finances. We find that TDA promotes home ownership, as households take advantage of the preferential tax treatments for both TDA and home ownership. They substitute TDA assets for home equity by accumulating wealth in TDA and making smaller down payments (taking out bigger mortgages); consequently, they become homeowners earlier in their lives. On the other hand, housing-related policies, such as a minimum down payment requirement and mortgage interest deductibility, affect households’ housing decisions more than their use of TDA.

Keywords: Economic models; Housing (search for similar items in EconPapers)
JEL-codes: C61 D14 D91 E21 H24 R21 (search for similar items in EconPapers)
Pages: 49 pages
Date: 2016
New Economics Papers: this item is included in nep-acc, nep-age, nep-dge, nep-pr~, nep-mac, nep-pub and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:bca:bocawp:16-24

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