On the Path to Homeownership: Money, Family Composition and Low-income Households

Abstract

In Norway, as in many other countries, homeownership is encouraged politically, and a majority of the households become homeowners at some stage in their life cycle. Many households move house when circumstances change, and it is often at this point that they also make their tenure choice. This paper employs a bivariate probit framework to model the transition rate from renting into homeownership. Using a sample of initial renters, subsequent tenure choice is analysed jointly with the stay-move decision. A particularly important question in this context is whether low-income households face differential constraints on entering owner occupation that could be addressed by policy change. The empirical model includes financial characteristics, household characteristics and changes in household characteristics as explanatory variables. Changes in household composition are particularly important in explaining variations in both tenure choice and mobility. Hence, the common practice of estimating housing market behaviour using a panel of intact households potentially obfuscates important determinants of that behaviour. The paper proceeds by using the equivalent of a Chow test to show that a hypothesis of equal coefficients in samples of low- and high-income households is firmly rejected. Thus low-income households do behave differently. Short-term variations in income appear to have little effect on people's capacity to enter owner occupation. However, low-income households are more dependent on past savings for successful entry. This suggests a rather different policy approach if owner occupation is to be expanded.