Earnings Uncertainty, risk-Aversion and Homeownership

In this paper we investigate the effect of labour income uncertainty on the probability of homeownership in Germany and Spain. This study is motivated by two facts. Firstly, theoretical modes tend to provide ambiguous results in this issue. Secondly, there is limited previous em[irical evidence and the existing focuses exclusively on the US housing market. We claim that more international evidence is mecessary in order to disentangle this puzzle. We develop a simple theoretical formula that highlights the pivotal role of risk attitudes in the housing tenure decision that also allow us to introduce the concept of "skewness affection" as a relevant phenomenon. To carry out this test we propose an imcome uncertainty measure based on panel data labour income equations. We observe that housholds facing increasing income uncertainty display preference for renting whil those located in positivly skewed income distribution show a greater propensity for homeownership. Incom uncertainty analysis in housing decisions has important implications for the design of public housing policies and also for the design of private mortgage insurance products