The Heterogeneous Relationship of Owner-Occupied and Investment Property with Household Portfolio Choice

29 Pages Posted: 22 Jul 2021

See all articles by Marco Felici

Marco Felici

University of Cambridge - Department of Land Economy

Franz Fuerst

University of Cambridge - Department of Land Economy; University of Melbourne; City University of New York - Center for Urban Research

Date Written: July 21, 2021

Abstract

The special, dual nature of property as both a consumption and an investment goodmakes it salient for portfolio choice. In fact, the theoretical literature predicts a con-straint imposed by property on investment and the empirical literature has broughtevidence that this constraint, in some form, exists, but neglecting to investigate its het-erogeneity and to differentiate between owner-occupied and investment property. Withreference to the predictions of a stochastic control model, we turn to the Wealth and As-sets Survey panel for the UK, which allows to break down in detail households’ port-folios, to show empirically how the relationship between property and stockholdingsdepends on the value of property relative to the size of the entire portfolio. While onaverage, an increase in the share of property in the total portfolio is estimated to cor-respond to a slight decrease or to no change in the share of stocks in liquid assets, thisnexus potentially goes from positive to negative depending on the weight of propertyin the portfolio. Consistent with the prediction that only consumption-relevant prop-erty places a constraint on portfolio choice, the relationship can be identified robustlyfor owner-occupied property only.

Keywords: Household Finance; Property; Portfolio Choice

JEL Classification: G11; G51; R21

Suggested Citation

Felici, Marco and Fuerst, Franz, The Heterogeneous Relationship of Owner-Occupied and Investment Property with Household Portfolio Choice (July 21, 2021). Available at SSRN: https://ssrn.com/abstract=3890258 or http://dx.doi.org/10.2139/ssrn.3890258

Marco Felici

University of Cambridge - Department of Land Economy ( email )

19 Silver Street
CB39EP

Franz Fuerst (Contact Author)

University of Cambridge - Department of Land Economy ( email )

19 Silver Street
Cambridge, CB3 9EP
United Kingdom

HOME PAGE: http://www.landecon.cam.ac.uk/directory/dr-franz-fuerst

University of Melbourne ( email )

185 Pelham Street
Carlton, Victoria 3053
Australia

City University of New York - Center for Urban Research

CUNY The Graduate Center
New York, NY 10011
United States

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