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Homeownership rates of financially constrained households

Homeownership rates of financially constrained households PurposeThis paper aims to examine tenure choice in the Swedish housing market with explicit consideration of households’ credit constraints in combination with age and ethnic background.Design/methodology/approachObservations of some 940,000 households were used to analyse the Stockholm housing market in 2008, prior to the implementation of the mortgage cap. The tenure choice models were estimated using a two-stage instrument variable (IV) logit and probit model with ownership or renting as outcome.FindingsThe results suggest, as expected, that being financially restricted is negatively related to owning. In particular, financial restriction is more binding for young households and households with a foreign background than for other types of households. These two sub-groups are also known to have difficulties establishing themselves in the rental housing market, and are therefore specifically vulnerable to further financial constraints such as borrowing restrictions or amortization requirements.Originality/valueThe government in Sweden has become concerned with the rapid growth in household indebtedness. As a response, a 0.85 loan-to-value ratio mortgage cap was introduced in 2010. However, critics are concerned with the effects this may have on the possibility for certain households to purchase a dwelling. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of European Real Estate Research Emerald Publishing

Homeownership rates of financially constrained households

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Publisher
Emerald Publishing
Copyright
Copyright © Emerald Group Publishing Limited
ISSN
1753-9269
DOI
10.1108/JERER-09-2015-0035
Publisher site
See Article on Publisher Site

Abstract

PurposeThis paper aims to examine tenure choice in the Swedish housing market with explicit consideration of households’ credit constraints in combination with age and ethnic background.Design/methodology/approachObservations of some 940,000 households were used to analyse the Stockholm housing market in 2008, prior to the implementation of the mortgage cap. The tenure choice models were estimated using a two-stage instrument variable (IV) logit and probit model with ownership or renting as outcome.FindingsThe results suggest, as expected, that being financially restricted is negatively related to owning. In particular, financial restriction is more binding for young households and households with a foreign background than for other types of households. These two sub-groups are also known to have difficulties establishing themselves in the rental housing market, and are therefore specifically vulnerable to further financial constraints such as borrowing restrictions or amortization requirements.Originality/valueThe government in Sweden has become concerned with the rapid growth in household indebtedness. As a response, a 0.85 loan-to-value ratio mortgage cap was introduced in 2010. However, critics are concerned with the effects this may have on the possibility for certain households to purchase a dwelling.

Journal

Journal of European Real Estate ResearchEmerald Publishing

Published: Aug 7, 2017

References