Rent or Buy? Inflation Experiences and Homeownership Within and Across Countries

Abstract

We show that past inflation experiences strongly predict homeownership within and across countries. First, we collect novel survey data, which reveals inflation protection to be a key motivation for homeownership, especially after personal experiences of high inflation. Second, using household data from 22 European countries, we find that higher personal exposure to historical inflation predicts higher homeownership rates. We estimate similar associations among immigrants to the US who experienced different past inflation in their home countries but face the same US housing market. As predicted by the experience-effects model, the relationship is strongest in countries with predominantly fixed-rate mortgages.