House Price Volatility and the Housing Ladder

46 Pages Posted: 15 Jun 2015

See all articles by James W. Banks

James W. Banks

Institute for Fiscal Studies; University of Manchester

Richard W. Blundell

UCL; IFS; IZA Institute of Labor Economics; Centre for Economic Policy Research (CEPR)

Zoé Oldfield

Institute for Fiscal Studies (IFS)

James P. Smith

RAND Corporation; IZA Institute of Labor Economics

Multiple version iconThere are 2 versions of this paper

Date Written: June 2015

Abstract

This paper investigates the effects of spatial housing price risk on housing choices over the first half of the life-cycle. Housing price risk can be substantial but, unlike other risky assets which people can avoid, most people want to eventually own their home thereby creating an insurance demand early in life. Our contribution focuses on the importance of home ownership as a hedge against future house price risk for individuals that plan to move up the housing ladder. We use a simple theoretical model to show that people living in places with higher housing price risk should own their first home at a younger age, live in larger homes, and be less likely to refinance. These predictions are shown to hold using panel data from the United States and United Kingdom.

Suggested Citation

Banks, James W. and Blundell, Richard W. and Oldfield, Zoe and Smith, James P., House Price Volatility and the Housing Ladder (June 2015). NBER Working Paper No. w21255. Available at SSRN: https://ssrn.com/abstract=2618643

James W. Banks (Contact Author)

Institute for Fiscal Studies ( email )

7 Ridgmount Street
London, WC1E 7AE
United Kingdom

University of Manchester

Oxford Road
Manchester, M13 9PL
United Kingdom

Richard W. Blundell

UCL ( email )

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

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

IFS

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London, WC1E 7AE
United Kingdom

HOME PAGE: http://www.ifs.org.uk

IZA Institute of Labor Economics

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

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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