Labour Income Uncertainty, Risk Aversion and Home Ownership

Luis Diaz-Serrano ()

No 1008, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: In this paper we investigate the effect of labour income uncertainty on the probability of homeownership in Germany and Spain. This study is motivated by two facts. Firstly, theoretical models tend to provide ambiguous results in this issue. Secondly, there is limited previous empirical evidence and the existing focuses exclusively on the US housing market. We claim that more international evidence is necessary in order to disentangle this puzzle. We develop a simple theoretical formula that highlights the pivotal role of risk attitudes in the housing tenure decisions that also allow us to introduce the concept of "skewness affection" as a relevant phenomenon. To carry out this test we propose an income uncertainty measure based on panel data labour income equations. We observe that households facing increasing income uncertainty display preference for renting while those located in a positively skewed income distribution show a greater propensity for homeownership. Income uncertainty analysis in housing decisions has important implications for the design of public housing policies and also for the design of private mortgage insurance products.

Keywords: credit constraints; earnings uncertainty; risk aversion; skewness affection; homeownership; transitory shocks in income (search for similar items in EconPapers)
JEL-codes: D1 J0 R0 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2004-02
New Economics Papers: this item is included in nep-geo, nep-lab and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published - published as 'Labor income uncertainty, skewness and homeownership: A panel data study for Germany and Spain ' in: Journal of Urban Economics, 2005, 58 (1), 156-176

Downloads: (external link)
https://docs.iza.org/dp1008.pdf (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: https://EconPapers.repec.org/RePEc:iza:izadps:dp1008

Ordering information: This working paper can be ordered from
IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany

Access Statistics for this paper

More papers in IZA Discussion Papers from Institute of Labor Economics (IZA) IZA, P.O. Box 7240, D-53072 Bonn, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Holger Hinte ().