House Price Volatility and the Housing Ladder

51 Pages Posted: 22 Sep 2010

See all articles by James W. Banks

James W. Banks

Institute for Fiscal Studies; The University of Manchester

Richard W. Blundell

UCL; Centre for Economic Policy Research (CEPR)

Zoé Oldfield

Institute for Fiscal Studies (IFS)

James P. Smith

RAND Corporation; IZA Institute of Labor Economics

Date Written: September 21, 2010

Abstract

This paper investigates the effects of housing price risk on housing choices over the life-cycle. Housing price risk can be substantial but, unlike other risky assets which people can avoid, the fact that most people will eventually own their home creates an insurance demand for housing assets early in life. The authors’ contribution is to focus on the importance of home ownership and housing wealth as a hedge against future house price risk for individuals moving up the ladder – people living in places with higher housing price risk should own their first home at a younger age, should live in larger homes, and should be less likely to refinance. These predictions are tested and shown to hold using panel data from the United States and Great Britain.

JEL Classification: D12, D91

Suggested Citation

Banks, James W. and Blundell, Richard W. and Oldfield, Zoe and Smith, James P., House Price Volatility and the Housing Ladder (September 21, 2010). RAND Working Paper Series WR- 786, Available at SSRN: https://ssrn.com/abstract=1680657 or http://dx.doi.org/10.2139/ssrn.1680657

James W. Banks (Contact Author)

Institute for Fiscal Studies ( email )

7 Ridgmount Street
London, WC1E 7AE
United Kingdom

The University of Manchester

Oxford Road
Manchester, N/A M13 9PL
United Kingdom

Richard W. Blundell

UCL ( email )

Department of Economics
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London, WC1E 6BT
United Kingdom
+44 20 7504 5863 (Phone)
+44 20 7916 2773 (Fax)

HOME PAGE: http://www.ucl.ac.uk/~uctp39a/

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Zoe Oldfield

Institute for Fiscal Studies (IFS) ( email )

7 Ridgmount Street
London, WC1E 7AE
United Kingdom

James P. Smith

RAND Corporation ( email )

P.O. Box 2138
1776 Main Street
Santa Monica, CA 90407-2138
United States

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

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