Tenant time preference as a barrier to homeownership

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Abstract

Many US government programs focus on reducing the financial barriers to homeownership. This paper uncovers evidence of an additional barrier - high time discounting by renters. Results from cumulative logistic and ordinary least squares models of 4228 households participating in the 2004 Survey of Consumer Finances indicate that renters self-report a significantly shorter financial planning time-horizon than owners do. Additionally, a tobit analysis reveals that renters tend to choose short-term, low-return investments when they save. A probit analysis of 14 743 household observations in the 2003-2004 Consumer Expenditure Survey reveals a significantly higher probability for consumption of tobacco by renters-a choice frequently associated with high time discounting due to negative long-term health effects. Each of these results is consistent with high time discounting by renters. Such discounting of future consequences can impede the transition to homeownership, which often requires delaying current consumption in exchange for future benefit.

Original languageEnglish
Pages (from-to)1073-1077
Number of pages5
JournalApplied Economics Letters
Volume16
Issue number10
DOIs
StatePublished - 2009

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