Annika Bacher (European University Institute)
27 January 2022 @ 10:30 - 11:45
- Past event
“Housing and Savings Behavior Across Family Types”
Abstract. Does marital status affect households’ investment choices? Is accounting for distinct family types necessary for the correct evaluation of policies that aim at stimulating housing demand? To answer these questions, I develop a life-cycle model of housing and financial portfolio choice with dynamic and heterogeneous family types. I find that divorce risk encourages precautionary savings of couples in the form of liquid assets and reduces their demand for illiquid housing. Expected marriage, low income levels and larger exposure to income fluctuations prevent singles from becoming homeowners. Abstracting from distinct family types amplifies the attractiveness of housing and, as a result, overstates the effectiveness of housing policies such as lowering property taxes and reducing transaction costs by a factor greater than two. This mis-specification is largest for young households who are most likely to be single and whose marital transition risk is highest. In contrast, regulations that facilitate stock market participation help to foster wealth accumulation, because they encourage investment in high return assets that are cheaper to liquidate in the event of a (marital or labor income) shock.