The Life Stages and Housing Decisions of Young Households: An Insider Perspective

Abstract

Conventional housing studies often model a household's housing demand and tenure choice as a joint decision; life stages are ‘taste’ variables that shift the housing demand function. In this study, as in conventional ones, I treat housing demand and tenure choice as a joint decision. Unlike in conventional studies, however, I argue that some life stages are endogenous and that an individual chooses to opt in or out of some of these stages—to stay single or form a couple, or to raise children. These decisions are correlated with tenure choice and housing demand. I use the census microdata file and set up a system of nine equations: six regimes of housing demand, an equation to explain tenure choice, and two equations to describe life-stage decisions. The result shows that housing consumption is less sensitive to permanent income once the endogeneity of life stages has been accounted for—that is, part of the income effect on housing consumption is due to life-stage decisions.