Behavioral Tenure Choice

Abstract

In contrast to the common tenure choice literature, we examine behavioral, as opposed to rational, factors affecting the individual's choice between homeownership and tenancy. We survey potential homebuyers in order to trace their tenure choice considerations. We find that while ordinary financial and risk factors, as well as, expected tenure duration correlate with the rent/own decision, interestingly, there is also a fundamental flawed reasoning regarding the financial superiority of one tenure mode over another. Moreover, we detect a set of behavioral factors - such as status, stability, happiness, success, peace of mind, sense of freedom and independence, sense of social fairness, better psychological feeling, and attachment to the housing unit - that correlate with the propensity to become a homeowner. Finally, we show that a series of behavioral factors are statistically significant in explaining the rational tenure choice, suggesting that irrational effects might act as underlying forces that determine the apparent rational tenure decision.