Homeownership and the Bank of Mom and Dad (Job Market Paper)
Abstract: How much of the homeownership rate among young households is accounted for by parental transfers? I build and estimate a life-cycle overlapping generations model with illiquid housing, in which the child and parent interact without commitment. I find that parental transfers account for 15 p.p. (31%) of the homeownership rate of young adults. Parental transfers increase homeownership for households with wealthier parents by relaxing borrowing constraints and reducing housing risk. Moreover, illiquid housing entails expenditure commitments, changing the strategic behaviour of households. Children with wealthy parents increase their consumption of illiquid housing to extract larger transfers, leading to a preference for illiquidity: 17% of 25-year old households prefer their own housing to be illiquid. Finally, I find that policies that decrease the sales cost of housing would be effective at increasing homeownership and decreasing the role of parent wealth in determining children's housing outcomes.
Conference Presentations: Computing in Economics and Finance, European Meeting of the Urban Economics Association, Consumer Financial Protection Bureau (CFPB) Research Conference, Young Economist Symposium 2020 at University of Pennsylvania, Oxford NuCamp Virtual Macro Workshop, Minnesota-Wisconsin Macro/International Workshop, Annual Society for Economic Theory Conference (SAET)
Invited Talks: Oxford Said, Federal Reserve Board, Boston Fed, USI Lugano, Bruxelles ECARES, Cal State Fullerton, Santa Clara University, NYU Furman Center, BI Norwegian Business School, Norges Bank
Stock Market Participation and Exit: The Role of Homeownership
[PDF], Slides: [20 minute talk]
Abstract: This paper argues that a large part of the stock market participation puzzle is driven by high stock market exit rates among participants: In the US, 20% of households who have stock hold no stocks two years later. Using survey data I show that stock market exit frequently coincides with renting households becoming first-time owners. After estimating a life-cycle model of portfolio choice with housing and per-period participation costs, I show that it quantitatively matches the US participation rate, homeownership rate, and entry/exit in stock markets over the entire life-cycle. The introduction of housing increases the exit rate among young new homeowners and reduces the participation rate among middle-aged and retired households by decreasing liquid wealth. Housing reduces the unexplained participation gap between the model and the data by 71%, compared to a model without housing
Conference Presentations: CEPR Sixth European Workshop on Household Finance (2021), Ohio State PhD Conference on Real Estate and Housing (2019), Minnesota-Wisconsin Macro/International Workshop (2019), Midwest Macroeconomic Meetings (2018)
Risk-Taking, Family Resources, and a Full View of the Portfolio (w. Annika Bacher (EUI) and Joel McMurry (UW-Madison))
[Draft coming soon]
Abstract: We empirically document the association between parental wealth and the risk-taking behavior of their adult children in the United States. We hypothesize that parental wealth increases risk tolerance of the child household, as wealthy, altruistic parents may provide partial insurance against losses, decreasing the downside to risk in asset, housing, and labor markets. Survey data on US households confirm this hypothesis. We first show that household risk-taking in individual assets is increasing in parental wealth. However, risk in one choice may be hedged against with other assets or expectations about future labor income. Therefore, we use the volatility of next-period wealth normalized by current wealth as our preferred measure of risk-taking, since this measure jointly accounts for multiple sources of risk. We derive the measure from a standard budget equation in a model of labor and portfolio choices with incomplete markets, with a clear mapping from theory to data. Overall risk-taking is increasing in parental wealth.
Intra-family Insurance, Portfolio Choice, and Inter-generational Wealth Inequality (w. Joel McMurry)
Publications in Norwegian
Fattig i fjor - fattig i år? Tilstandsavhengighet i innvandrerfattigdom, joint with Manudeep Bhuller, Søkelys på arbeidslivet, vol. 3 (2014)
Fattigdomsdynamikk blant innvandrere, joint with Manudeep Bhuller, Statistics Norway Reports, vol. 40 (2013)