Back to search

FINANSMARK-Finansmarkedet

The returns to housing ownership – Mechanisms and long-term effects

Alternative title: Avkastningen på boligeierskap - Mekanismer og langsiktige effekter

Awarded: NOK 6.0 mill.

Housing is an important financial asset for Norwegian households, many households holds most of their wealth in owner-occupied housing. The high housing debt a main vulnerability in the Norwegian financial system. Thus, understanding how housing markets function is important for stable, well-functioning financial markets. It is also known from previous research that wealthy households have a higher investment return than poorer households. Part of that return comes from the high return to owning housing over the previous decades. But an increasing share of low-income households do not own housing. As housing prices and rents, particularly in urban areas, have been increasing, there is a concern that the housing market is an important driver of inequality. In this project, we will combine large administrative datasets, modern econometric methods and economic theory to provide novel empirical evidence on how housing market mechanisms affect housing ownership and housing return. We will estimate how increasing housing prices affect housing returns differently for owners and renters. To better understand the causes of long-term differences in tenure and returns, we will study how parental wealth effects entrance to the housing market and long-term housing returns. To better understand the trends in urban housing prices, we will explore how housing supply in urban neighborhoods affects housing price growth. Do increased housing construction in a neighborhood cause gentrification, or lower prices due to higher supply? We also aim to improve the methods for estimating housing demand to understand the individual housing choices underlying residential sorting. Finally, we explore price setting through auctions, asking why preemtpive bids sometimes succeed in housing auctions. This can teach us about the extent of buyer and seller risk aversion in the housing market, and also about whether housing buyers learn about auction strategies over time.

The aim of this project is to provide novel empirical evidence on how housing market mechanisms affect housing ownership and returns. Housing is a main asset for most Norwegian households, and the high housing debt a main vulnerability in the Norwegian financial system. Thus, understanding how housing markets function is important for stable, well-functioning financial markets. Wealthy households have a higher investment return than poorer households. Part of that return comes from owner-occupied housing. For middle-class households, a major part of returns comes from leveraged, owner-occupied housing. But not all households own housing. Tenure status is an additional aspect of heterogeneity in wealth growth when housing prices increase. The increase in urban housing prices and rents gives rise to concerns that the housing market is an important driver of inequality. In this project, an international team of promising researchers will combine theory, credible identification strategies, and recent econometric developments with large administrative datasets that can be linked to supplementary data, including geo-coded building data. We estimate how the effect of increasing housing prices affect housing returns dependent on tenure status. Turning to the causes of long-term difference in tenure and housing return, we provide evidence on how wealth causally effects early housing choices and long-term housing returns. Then we look at factors that affect housing prices. We explore the possibility to achieve more affordable urban housing by estimating causal links between housing supply in urban neighborhoods and housing price growth. To better understand the individual housing choices underlying residential sorting, we aim to improve the methods for estimating housing demand. Finally we explore price setting through auctions, asking why preemtpive bids sometimes succeed in housing auctions, with a focus on the implications for buyer risk aversion and market learning.

Funding scheme:

FINANSMARK-Finansmarkedet