Bracke, Philippe
(2012)
Prices, rents, and homeownership: three essays on housing markets.
PhD thesis, London School of Economics and Political Science.
Abstract
This thesis includes three self-contained chapters whose common theme is the analysis of house price and rent movements, and how these movements influence the economic actions of individuals. In Chapter 1, I analyse a micro dataset on housing sales and rentals in Central London.
I show that the ratio between prices and rents differ across property types: bigger and better located properties have higher price-rent ratios. These differences in price-rent ratios can be explained through a hedging model where households avoid rent risk by increasing their demand for homeownership. Consistently with this hypothesis, I find that rental prices for bigger properties and properties in more expensive neighbourhoods are not growing significantly faster than for other properties, but are more volatile. In Chapter 2, together with my two co-authors Christian Hilber and Olmo Silva, I study the relationship between homeownership and entrepreneurship by exploiting the longitudinal dimension of the British Household Panel Survey (BHPS) and constructing a detailed monthly-spell dataset that tracks individuals' job histories and tenure choices, coupled with other time-varying characteristics. Our fixed-effect estimates show that purchasing a house
reduces the likelihood of starting a business by 20-25%. This result is driven by homeowners with mortgages and persists for several years after entering homeownership. The negative relationship can be rationalised by portfolio considerations: leveraged housing investments crowd out entrepreneurial investments. Alternative explanations based on credit constraints find little support in our data.
In Chapter 3, I analyse the duration of house price upturns and downturns in the last 40 years for 19 OECD countries and provide two results. First, upturns display duration dependence: they are more likely to end as their duration increases. Second, downturns display lagged duration dependence: they are less likely to end if the previous upturn was particularly long. Both these facts are consistent with a boom-bust view of housing price
dynamics, where booms represent departures from fundamentals that are increasingly difficult to sustain, and busts serve as readjustment periods.
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