To Buy or Not to Buy: Household Risk Hedging of Housing Costs

29 Pages Posted: 27 Mar 2018

See all articles by Shuo Liu

Shuo Liu

University of International Business and Economics (UIBE)

Jin Wang

University of International Business and Economics (UIBE)

Weixing Wu

University of International Business and Economics (UIBE)

Date Written: December 2017

Abstract

This study studies Chinese households’ decision between buying or renting a primary residence from a risk hedging perspective. Although homeownership means bearing house price risk, it eliminates exposure to rent risk. Our empirical results suggest that the homeownership rate increases with the rent volatility of living areas and decreases with the probability of move. However, households no longer hedge against the rent risk when owning a second house, which is often purchased as an investment property. Furthermore, we investigate households with heads aged over 60. Due to finite life expectancy, the rent hedging benefit of owning is weakened.

Keywords: Homeownership, Rent risk, Risk hedging

Suggested Citation

Liu, Shuo and Wang, Jin and Wu, Weixing, To Buy or Not to Buy: Household Risk Hedging of Housing Costs (December 2017). Accounting & Finance, Vol. 57, Issue 5, pp. 1417-1445, 2017, Available at SSRN: https://ssrn.com/abstract=3150042 or http://dx.doi.org/10.1111/acfi.12333

Shuo Liu (Contact Author)

University of International Business and Economics (UIBE)

10, Huixin Dongjie
Changyang District
Beijing, Beijing 100029
China

Jin Wang

University of International Business and Economics (UIBE)

10, Huixin Dongjie
Changyang District
Beijing, Beijing 100029
China

Weixing Wu

University of International Business and Economics (UIBE) ( email )

10, Huixin Dongjie
Changyang District
Beijing, Beijing 100029
China

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