Consumption and Investment Motives in Housing Wealth Accumulation: A French Study

Abstract

The dual motives of housing behavior, consumption and investment, make the analysis of housing purchases quite difficult. Nevertheless, it is better to refer to a model that keeps the two-dimensional aspect of housing [Henderson and Ioannides, Am. Econ. Rev.73, 93–111 (1983)]. In the absence of institutional considerations, this model predicts that it is the difference between the investment demand for housing and the consumption demand that explains decisions to purchase dwellings for owner occupation and for renting out. We have tested the model on the French data of the survey “Actifs Financiers 1992.” Results show that the difference between the two demands cannot in itself explain housing purchases. Transaction costs, the tax system, the public aid policies for home ownership, and other market imperfections are inadequately dealt with. Moreover, estimation and identification of housing demand functions, both for consumption and investment, tend to show that there are portfolio motives in the factors that determine housing demand for owner occupation. French households behave in a different way than U.S. households: for them, the difference between the two demands for housing explains behavior and consumption motives dominate primary residence purchase [Ioannides and Rosenthal, Rev. Econ. Statist.XX, 127–141 (1994)].