Economics of Housing Tenure Choice

The paper presents a model where ownership becomes important for the utility a household gets from housing consumption. The reason is that each household has an ideal variant of housing that is obtainable by supplementary investments to the housing capital. Because contracting is costly, only consumers with strong preferences for ideal variants choose homeownership instead of renting. The paper derives equilibrium on the residential market under various assumptions about the utility function and modes of adaptation. The model explains why homeowners typically live in bigger dwelling units than tenants, and why congested cities have smaller rates of homeownership