Determinants of the Homeownership Rate: A Survey of Recent Contributions

Abstract

This study reviews the literature on the determinants of a country’s homeownership rate including factors such as demographic characteristics, household level economic variables, and government housing policies. We present a comprehensive model of a household’s tenure choice, one that allows for the taxation of imputed rental income and capital gains, deductions of mortgage interest, property taxes, and other expenses, subsidies to owners and renters, and borrowing constraints. This model is used throughout the paper to compare countries’ tax and subsidy policies toward housing and critique various methodologies. We emphasize that homeownership cannot be considered in a static framework. Rather, factors such as house price capitalization effects and households’ choices of household structure, mortgage loan-to-value ratio, and wealth accumulation must be considered. We argue that the best empirical studies are ones that use panel household-level data and have access to a large set of measures of housing taxes and subsidies, macroeconomic variables, and household characteristics. Only in this framework can one study the variations in effects of influential variables on different types of households who live in different locations. We conclude with a review of three such analyses of the variations in homeownership rates across developed countries.

Keywords: homeownership, demographics, tenure choice, housing policy, costs of owning and renting, borrowing constraints

JEL Classification: R31