Working Papers
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 shiftshare 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, 12min NBER SI presentation recording, 12min slides]
Revise and Resubmit at Journal of Financial Economics
A convex combination of renting and traditional homeownership—Partial Ownership (PO)—is increasingly popular in many countries. We incorporate an existing for-profit PO contract into a life-cycle model to quantify its impact on investment in housing, households’ welfare, and financial stability. We have the following results: 1) PO makes more households invest in (some) housing. 2) Willingness to pay for PO increases with housing unaffordability and is highest among low-income and renting households. 3) PO may reduce systemic risk despite raising aggregate debt because the most indebted traditional homeowners become partial owners.
Media: Dagens Næringsliv Column by coauthor (Norwegian)
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.
Media: The Economist
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