Working Papers

The Housing Channel of Intergenerational Wealth Persistence (w. E. G. Wold, K. A. Aastveit, R. Juelsrud, G. J. Natvik) [PDF, Slides]

We use Norwegian tax data and a life-cycle model with housing to study how wealth transmits across generations through the housing market. After controlling for a rich set of attributes, households with richer parents are nearly 15% more likely to be homeowners at age 30. Moreover, when entering, they have higher leverage and buy homes worth 15% more. Estimates using international stock market returns as a shift- share instrument support a causal interpretation. We further document that housing outcomes when young are important determinants of midlife wealth. This holds also when using plausibly exogenous variation in homeownership caused by the timing of intra-family deaths. As a result, housing gaps caused purely by parental wealth explain 12% of intergenerational wealth persistence, making housing equally important as the combined impact of a wide range of household characteristics including income and education. We explore new mechanisms for parental support, such as intra-family housing transactions below market value. Through the lens of our model, house price expectations stand out as a key driver of the magnitude of the housing channel of intergenerational wealth persistence.

Media: Finansavisen (Norwegian), Dagens Næringsliv (Norwegian)

Partial Homeownership: A Quantitative Analysis (w. Jens Kvaerner) [PDF]

Partial ownership (PO) is a contract allowing households to choose how much to rent or to own. We document rapid growth of PO contracts in multiple countries, such as China, Australia, and Norway. In this paper, we analyze PO in a life-cycle model of homeownership with PO. The average welfare gain for households under 55 is $3,500 or 10% of annual income. Demand for PO is largest among poor renters and increases with housing unaffordability. PO improves welfare by allowing gradual adjustments in the housing market. Households who can’t afford a whole house due to regulatory mortgage constraints can now buy a share of one while households who are stretching to buy a whole house can now take less risk and buy a large share of the same house.

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.

Stock Market Participation and Exit: The Role of Homeownership [PDF], Slides: [20 min]

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

In Progress

Parental Insurance and Financial Risk-Taking  (w. Annika Bacher and Joel McMurry)

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.

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)