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Do households use home-ownership to insure themselves? Evidence across U.S. cities

Michael Amior and Jonathan Halket

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: Are households more likely to be homeowners when “housing risk” is higher? We show that home-ownership rates and loan-to-value (LTV) ratios at the city level are strongly negatively correlated with local house price volatility. However, causal inference is confounded by house price levels, which are systematically correlated with housing risk in an intuitive way: in cities where the land value is larger relative to the local cost of structures, house prices are higher and more volatile. We disentangle the contributions of high price levels from high volatilities by building a life-cycle model of home-ownership choices. We find that higher price levels can explain most of the lower home-ownership. Higher risk in the model leads to slightly lower home-ownership and LTV ratios in high land value cities. The relationship between LTV and risk is corroborated by LTV's negative correlation with price volatility in the data and highlights the importance of including other means of incomplete insurance in models of home-ownership.

Keywords: home-ownership; housing risk; land share; loan-to-value; life-cycle; PTA-026-27-2395; ESRC-CeMMAP Grant; ES/I034021/1 (search for similar items in EconPapers)
JEL-codes: D91 E21 R21 R31 (search for similar items in EconPapers)
Date: 2014-11
New Economics Papers: this item is included in nep-mac and nep-ure
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Published in Quantitative Economics, November, 2014, 5(3), pp. 631-674. ISSN: 1759-7323

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Related works:
Journal Article: Do households use home‐ownership to insure themselves? Evidence across U.S. cities (2014) Downloads
Working Paper: Do Households Use Homeownership To Insure Themselves? Evidence across US Cities (2011)
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