Demographic and Public Policy Influences Rates in Selected ...

1 From:OECD Journal: Economic StudiesAccess the journal at: Evolution of HomeownershipRates in Selected OECD Countries: Demographic and Public Policy InfluencesDan Andrews, Aida Caldera S nchezPlease cite this article as:Andrews, Dan and Aida Caldera S nchez (2011), The Evolution ofHomeownership Rates in Selected OECD Countries: Demographicand Public Policy Influences , OECD Journal: Economic Studies, document and any map included herein are without prejudice to the status of orsovereignty over any territory, to the delimitation of international frontiers and boundaries and tothe name of any territory, city or Journal: Economic StudiesVolume 2011 OECD 2011207 The Evolution of Homeownership Rates in Selected OECD Countries.

2 Demographic and Public Policy InfluencesbyDan Andrews and Aida Caldera S nchez*Homeownership Rates have increased significantly in many OECD countries over recentdecades. Using micro-econometric decomposition techniques, this paper shows that part ofthis increase can be explained by changes in the characteristics of households, including age,household structure, income and education. Nevertheless, a significant portion of the changein homeownership Rates remains unexplained by shifts in household characteristics, leavinga potential role for Public Policy in explaining developments in homeownership Rates .

3 Panelestimates suggest that the relaxation of down-payment constraints on mortgage loans hasincreased homeownership Rates among credit-constrained households over recent decades,resulting in a rise in the aggregate homeownership rate that is comparable with the impactof population ageing. In countries where tax relief on mortgage debt financing is generous,however, the expansionary impact of mortgage market innovations on homeownership issmaller. This is consistent with the tendency for such housing tax relief to be capitalised intoreal house prices, which may crowd-out some financially constrained households fromhomeownership at the margin.

4 The impact of housing policies regulating the functioning ofthe rental market, such as rent regulation and provisions for tenure security, on tenure choiceis also classification: R21, R31, G21, : Housing markets, homeownership, mortgage markets, financial regulation,taxation.* Dan Andrews (e-mail: and Aida Caldera S nchez both work at the OECD Economics Department. The authors wouldlike to thank J rgen Elmeskov, sa Johansson, Giuseppe Nicoletti and Jean-Luc Schneider as well asPaul Cheshire and Sveinbj rn Bl ndal for their valuable comments and Catherine Chapuis forexcellent statistical work as well as Irene Sinha for excellent editorial support.)

5 The views expressedin this paper are those of the authors and do not necessarily reflect those of the OECD or its EVOLUTION OF HOMEOWNERSHIP Rates IN Selected OECD COUNTRIES: Demographic AND Public Policy INFLUENCESOECD JOURNAL: ECONOMIC STUDIES VOLUME 2011 OECD 2011208 Aggregate homeownership Rates have increased significantly in many OECD countriesover recent decades. A deeper understanding of the factors driving these trends is useful,given the potential consequences of homeownership for economic performance.

6 On theone hand, homeownership has been linked to better educational outcomes and, thus,future income prospects for resident children (Haurin et al. 2002), as well as broadersocietal benefits. The latter includes the idea that homeownership provides the moststable tenure arrangement to satisfy basic household needs and promotes a more activeand informed citizenry (Di Pasquale and Glaeser, 1999). On the other hand, Rates ofresidential mobility tend to be lower among homeowners than renters possibly reflectingthe higher moving costs associated with owner-occupied housing which may makehomeowners more susceptible to spells of if the broader net effects of homeownership are unclear, it is still important tounderstand the factors driving homeownership Rates to the extent that boostinghomeownership has been a Public Policy goal in many OECD countries.

7 For instance, ahigher homeownership rate has been explicitly pursued by successive administrations inthe United States. In 2002, President Bush outlined a comprehensive agenda to helpincrease the number of minority homeowners by at least million before the end of thedecade (see Bush, 2002), while in 1994, President Clinton requested an .. effort todramatically increase homeownership in our nation over the next six years (see Clinton,1994). Moreover, homeownership developments have recently been at the forefront ofpolicy discussion in Australia and New Zealand two countries where the acquisition ofthe family home is likened to the attainment of the national dream (see Moran, 2006;Ferguson, 1994).

8 Consistent with these ideas, Public Policy in OECD countries is generally geared toenhancing homeownership, whether through the preferential tax treatment of housinginvestment or broader changes in financial markets that have alleviated While it is tempting to conclude that such factors have underpinned a shifttowards homeownership as the preferred mode of tenure in many OECD countries, part ofthe increase in homeownership Rates over this period could simply reflect demographicand socio-economic Influences .

9 For example, the tendency for homeownership Rates torise with age implies that aggregate homeownership Rates would have increased in OECD countries over recent decades even if nothing else changed due to population , this paper explores the extent to which trends in homeownership Rates ina sub-set of OECD countries reflect changing household characteristics including age,household structure, incomes and education and Policy Influences such as mortgagemarket innovations and tax reliefs on mortgage debt new findings emerge: Overall, changes in household characteristics can account for around three-quarters ofthe increase in aggregate homeownership Rates in Austria and the United Kingdom overthe decade from the mid-1990s to mid-2000s, but only around one-third of the increaseTHE EVOLUTION OF HOMEOWNERSHIP Rates IN Selected OECD COUNTRIES.

10 Demographic AND Public Policy INFLUENCESOECD JOURNAL: ECONOMIC STUDIES VOLUME 2011 OECD 2011209in Canada, Germany, Spain, Switzerland and the United States. In Australia andespecially Italy, other factors appear to have played a particularly important role inshaping homeownership patterns. On average, population ageing has boosted the aggregate homeownership rate by -1 percentage point among the countries analysed, with the effect being particularlynoticeable in Switzerland, Germany, Denmark and Canada.