Housing Ownership Decision Making in the Framework of Household Portfolio Choice

Abstract

While it is well documented that homeowners have greater total wealth than renters, it is not clear that homeownership causes this wealth differential. We consider the buy versus rent decision in the framework of household portfolio choice. This allows us to determine whether owning a home increases the utility of households by improving the performance of their portfolio compared with households that rent. We determine that while renting is superior to ownership in isolation, homeownership as a part of the household portfolio often improves wealth creation on a risk-adjusted basis. Our findings suggest significant policy changes that currently favor levered homeownership strategies for households with minimal wealth.