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Homeownership and Wealth Accumulation

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Wealth and Homeownership

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Abstract

This chapter elaborates on the relationship between homeownership and wealth, particularly investigating whether homeowners have additional wealth, which seems to be the case. We run the empirical analysis using the Household Finance and Consumption Survey (HFCS) data for two waves and point to differences that exist among women and men. The chapter also questions the risks that an excessively illiquid portfolio might generate.

We are thankful to Mario Cannella for invaluable research assistance using the HFCS data and to an anonymous referee for useful and thoughtful suggestions on this chapter.

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Notes

  1. 1.

    There is a mountain of research discussing the relationship between homeownership and labor markets and voluminous one pointing to the fact that homeowners have better employment outcomes. See Morescalchi (2016) for a review.

  2. 2.

    There have been numerous attempts to examine the causality of this link, which is extremely complicated, particularly if homeownership is examined within portfolio choices. Most recently Beracha et al. found that homeownership improves wealth creation on a risk-adjusted basis as a part of the household portfolio. Renters may achieve higher returns, but not in very realistic scenarios.

  3. 3.

    Assets can be summarized as a composite bundle of activities and liabilities and are a rather non-homogeneous stock. Net assets represent the sum of financial wealth made up of risky (stocks) and less risky assets (bonds) and real wealth (housing equities) minus debts, including mortgages on housing.

  4. 4.

    If the data are cross-sectional, the age effect could be wrongly interpreted as mixing a cohort effect, as shown conceptually in the seminal paper by Shorrocks (1975). However, the U-shaped age effect is also found using panel data by Romiti and Rossi (2014).

  5. 5.

    See Yaari (1965) and more recently Lockwood (2012).

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Authors and Affiliations

  1. Department of Management, School of Management and Economics, University of Torino, Torino, Italy

    Mariacristina Rossi

  2. LISER - Luxembourg Institute of Socio-Economic Research, Esch-Belval, Luxembourg

    Eva M. Sierminska

Authors
  1. Mariacristina Rossi
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  2. Eva M. Sierminska
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Rossi, M., Sierminska, E.M. (2018). Homeownership and Wealth Accumulation. In: Wealth and Homeownership. Palgrave Pivot, Cham. https://doi.org/10.1007/978-3-319-92558-5_4

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