Housing Wealth Across Cultures, Institutional Environments, and Life Cycles

Project Start:03/2014
Researchers:Enzo Cerletti, Ester Faia, Michael Haliassos, Spyridon Palligkinis
Category: Household Finance, Macro Finance
Funded by:LOEWE

Recent data on household wealth across euro area countries shows that Mediterraneans have much greater homeownership rates than those observed in the North, across the entire wealth distribution but particularly in its lower part. This has created considerable, and often heated and politically charged, discussion as to the main causes of the difference. Although a number of factors could potentially be contributing to this differential behavior, we plan to focus on two classes of factors, examine their interplay, and how far they can take us towards explaining observed differences: cultural factors affecting preferences, and aspects of the economic environment governing background risk and inducing precautionary responses.

We lay down a life cycle model where households own houses and get debt to fund investment, they are subject to endogenous collateral constraints, housing stock is subject to adjustment costs. Households have also the possibility of renting in and out and feature status preferences.

We simulated the model using endogenous grid point methods. We have so far a considerable number of results from the simulation and we ra ein the preocess of preparing a draft of the paper.