HOUSE PRICES, RENTAL COSTS, AND MORTGAGE INTEREST RATES

Studies have typically adopted the price-rent ratio to determine whether housing exuberance exists and the periods of imbalance between house prices and rental costs. Using the price-rent ratio to conduct tests without considering the effects of mortgage interest rates on user costs may overestimate episodes of exuberance. This study uses data of the overall housing market and those of 10 major metropolitan statistical areas (MSAs) in the United States from 1979Q1 to 2018Q1 to evaluate whether housing exuberance exists in the markets; the results indicate that all the MSAs experienced episodes of exuberance at different times and the overall housing U.S. market was overheated from 1998Q2 to 2007Q3. By considering mortgage rates and using the user-cost-rent ratio, we further determine that short-term housing exuberance emerged in only two MSAs, Los Angeles and Miami, in 2006Q2, which was followed by immediate corrections. Thus, the research results of this study signify that only use the price-rent ratio to determine whether or not rational housing tenure choice made by traders exists is not sufficient. This study provides evidence showing that the method incorporating mortgage interest rates tends to obtain an equilibrium relationship between the rental and housing markets, indicating interest rates play an important role in housing tenure choice.

The Effect of Household Debt and Wealth on Subsequent Housing Tenure Choice

The purchase of a home is the largest investment made by most American families, and home equity is the largest component of family wealth. Scholars have long documented the social and economic merits of homeownership and explored the factors that influence access to it. However, despite the abundance of literature on homeownership and housing tenure choice, we lack a study that focuses on whether and how debt and wealth influence a household’s decision to own or rent a home. Using 2004 and 2008 panel data from the Survey of Income and Program Participation (SIPP), this study attempts to identify the causal effect of household debt and wealth on a household’s decision to change tenure choice by examining what factors influence transition from homeowner to renter or from renter to homeowner. Data analysis shows that household secured debt, household wealth, and household income play a significant role in household’s change in tenure choice. While race is not a significant factor influencing the likelihood of a homeowner transitioning to a renter, it was a significant factor for a renter transitioning to a homeowner. Minority renters are significantly less likely to become homeowners compared with white renters, even when controlling for wealth and debt.

Retirement Age and Housing Consumption: The Case of South Korea

South Korea became an aging society in 2000 and will become a super-aged nation in 2026. The extended life expectancy and earlier retirement make workers’ preparation for retirement more difficult, and that hardship might lead to poorer living conditions after retirement. As annuity payments are, in general, not enough for retirees to maintain their previous standard of living after retirement, retired households would have to liquidate their financial and real assets to cover household expenditures. As housing takes the biggest share of households’ total assets in Korea, it seems to be natural for retirees to downsize their houses. However, there is no consensus in the housing literature on housing downsizing, and the debate is still ongoing. In order to understand whether or not housing downsizing by retirees occurs in Korea, this paper examines the impact of the timing of retirement on housing consumption using an econometric model of housing tenure choice and the consumption for housing. The results show that the early retirement group living in more populated region does not downsize the house, while the timing of retirement is negatively associated with housing consumption for the late retirement group living in the peripheral region.

International Real Estate Review

This paper develops a theoretical model for equilibrium rent-to-price ratios from the competition between households and investors in the housing market. Households make their housing tenure choice in terms of rent vs. buy such as minimizing the cost of occupying a housing unit. On the other hand, investors choose between investing in rental housing vs. other investment opportunities in order to maximize their net present value. In the face of limited housing inventory, households and investors bid against one another which determines the allocation of the housing units among households (owner occupied properties) and investors (rental properties). We derive the sensitivity of the equilibrium rent-to-price ratio with respect to various market parameters, and subsequently analyze their potential impacts on the homeownership rate in the community. We show that some government mortgage programs subsidize homeownership to increase the affordability of owning a house, but may also provide even more incentive to the housing investors. Unless the government can effectively control the eligibility of borrowers, such affordable mortgage programs could work against their objectives and lead to higher housing prices and lower homeownership rates. Our model framework can be used to analyze the potential impacts of some of the new affordable housing policies on house prices or homeownership rates before adopting them.

Housing Tenure Choice and Housing Affordability in Nigeria: A Comparative Analysis of Owners and Renters of Organized Private Sector Housing

Housing tenure choice is one key decision that a household must make. This decision has been established to have direct implications for household housing affordability. This research assessed and compared the housing affordability of owners and renters of organized Private Sector Housing delivery in Nigeria. Data were collected from eleven (11) states and the Federal Capital Territory across the six (6) geo-political zones of Nigeria. A cross-sectional survey design was adopted with multi-stage sampling technique employed to select estates residents for interview. Structured questionnaire were administered on 10% (1,950) heads of households randomly selected from all the occupied houses. The study revealed that 48% of the residents were owners and 52% renters. It was discovered that more owners than renters are under severe housing affordability stress/burden. While 29% of owners enjoy “normal housing affordability” (housing expenditure of 1% - 30%), 41% of renters enjoyed such. Also, while 36% of owners enjoyed “tolerable housing affordability” (30.1% - 50% housing expenditure), 41% of the renters fall within that range. Furthermore, while 35% of owners are theoretically under severe housing affordability stress/burden (with >50% housing expenditure), only 18% of the renters are. The study confirmed that renters enjoyed better housing affordability than the owners. Major policy implications include the need for housing policy and delivery in Nigeria to recognize and facilitate rental housing while steps should be taken to relieve the burden of home ownership by working on mortgage penetration, cost of building materials and other incidental expenses of ownership so as to enhance housing affordability of Nigerians.

¿Incide la forma de tenencia de la vivienda habitual sobre la situación de empleo en España?

The objective of this study is to provide more empirical evidence on the possible existence in Spain of causal relationships between housing tenure choice (ownership/rental) and the employment status of household head (employed/unemployed), separating this effect from the one generated by other covariates and unobservables which might affect, as well as from the reverse causal effect that might exist. With this aim, based on micro data from the Survey of Living Conditions for 2010 and the approach of the literature of treatment effects, we estimate switching probit models that relate these variables at the microeconomic level. The results obtained allow us to assert that owning the main residence, whether it is mortgaged or not, increases the probability of employment around 10%.

Housing Tenure Choice of Low-Income Household in Jabodetabek

This study aims to identify the preferences of low-income people in making housing tenure choices within the next 5 years. Each person has the right to have a place to live in. However, the options available for low-income people to own a home are limited. Therefore, information on the preferences of low-income people in purchasing houses needs to be identified so that the government can formulate effective and efficient intervention policies. A sample of 1030 samples was obtained using the stratification sampling method, of which 638 are households had rental status (taking households with the lowest level of welfare between 10-40%) in the Regency and City. Discrete choice models were used to determine the preferences in owning a home. The study revealed that demographic variables and household characteristics variables (household size and length of stay) had consistent negative relationships with preferences for buying a house in the future. Also, the government needs to take action so that the socialization of housing policy becomes more optimal, effective and targeted. The goal of the policy socialization should be directed to newly married couples.