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

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 thus an important 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 source of inequality.

In this project, we 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 returns, we provide evidence on how parental 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 preemptive bids sometimes succeed in housing auctions, with a focus on the implications for buyer and seller risk aversion.

Funding: Finansmarkedsfondet (project number 338277)

Period: 2023 - 2027