Homeownership as Life Cycle Goldmine: Evidence from Macrohistory

Abstract

Should households buy their homes? Contrary to popular expert advice, our block-bootstrap lifecycle simulation provides an affirmative answer. Homeownership generates wealth and welfare gains relative to rent-for-life benchmarks that invest only in financial assets. It lowers household portfolio downside risk and improves retirement consumption and bequest outcomes. The gains reflect risk aversion, intertemporal substitution, leverage-induced trade-offs between consumption and the timing of home purchases, and the liquidity costs of homeownership. Their magnitude varies across labor income profiles, house price environments, and mortgage rates. Our findings suggest that homeownership can build wealth more effectively than common portfolio strategies, including all-equity portfolios.