Consumption over the Life Cycle: How Different is Housing?

Abstract:     
Micro data over the life cycle show different patterns for consumption for housing and non-housing goods: The consumption profile of non-housing goods is hump-shaped, while the consumption profile for housing first increases monotonically and then flattens out. These patterns hold true at each consumption quartile. This paper develops a quantitative, dynamic, general equilibrium model of life-cycle behavior, that generates consumption profiles consistent with the observed data. Borrowing constraints are essential in explaining the accumulation of housing stock early in life, while transaction costs are crucial in generating the slow downsizing of the housing stock later in life.

Keywords: Consumption, Housing, Life cycle, Distribution

JEL Classifications: E21, J14, R21

Working Paper Series