published in: Journal of Housing Economics, 2005, 14 (2), 109-126
Barriers to homeownership have traditionally been an important research and policy issue. In
particular, the role of income volatility and credit constraints have been one of the main
focuses in this concern. In this paper we test for the first time whether the underlying nature
behind the negative effect of income uncertainty on the owner-occupancy propensities is
driven by risk aversion, as it is assumed in most of the theoretical models, or on the contrary
it is driven by credit constraints. The former question emerges from the plausible assumption
that households facing higher income volatility are also expected to face borrowing
constraints. To disentangle this puzzle, we use an unusually rich data coming from the Italian
Survey of Household Income and Wealth carried out by the Bank of Italy. Our results confirm
that in Italy both labor income uncertainty and credit constraints exert a significant negative
effect on the probability of homeownership. Our main findings indicate that the negative
relationship between labor income uncertainty and the owner-occupancy propensities are just
driven by households’ risk aversion, while credit constraints play no role.
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