Housing and Wealth Portfolios

Abstract

The household’s decision to invest in a home is complicated by the fact that owner-occupied housing plays a dual role as both a physical good generating housing services and as a component of the wealth portfolio. For many homeowners, housing represents both the largest single element of the monthly expenditure and the most important asset in the wealth portfolio. We consider the role of owner-occupied housing in the asset portfolio, assuming that the household owner-occupies a particular house, and thus the quantity of housing held as an asset coincides with the household’s consumption of housing services.