The Riskiness of Owning Versus Renting Housing
Abstract: Homeowners and renters have mirror-image exposures to the substantial risks in housing prices. The costs of these exposures depend crucially on their correlations with other important exposures in household portfolios. Using over 70 years of data on local markets in the U.S., we find that rents and home prices are strongly positively correlated with wages at all horizons. As a result, renting insures earnings risk, and—contrary to widely-held views—for many households owning is much riskier than renting. Combined with evidence that many households view home ownership as being particularly safe, our findings suggest that the efficiency costs of the substantial tax preferences for owner occupied housing are greater than previously thought.
Scott Baker, Lee Lockwood, Lorenz Kueng, Pinchuan Ong
Baker, Scott, Lee Lockwood, Lorenz Kueng, and Pinchuan Ong. 2019. The Riskiness of Owning Versus Renting Housing.