While there seems to be no end to estimates of housing tenure
determinants, prior studies have not accounted for the simultaneity of tenure
choice with household formation, labor supply or the marriage decision. Our
estimates are superior to those in the literature both because we address these
issues and because we better measure the cost of owning relative to renting.
Accounting for simultaneity with the household formation and labor supply
decisions matter. Using a household's predicted wage rate rather than its
observed income doubles the response of tenure choice to the price of owning
relative to renting. Including household formation selectivity correction
variables cuts the response to tenure choice to the predicted wage by 25
percent. Moreover, the impact of variations in demographic variables on tenure
choice is sharply reduced after correcting for selectivity bias.
*Published:
Journal of Urban Economics, January 1994, pp 28-45.
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