HOW CREDIT MARKETS AFFECT HOMEOWNERSHIP: AN EXPLANATION BASED ON DIFFERENCES BETWEEN ITALIAN REGIONS

This paper deals with the importance of liquidity constraints in shaping one of the main consumption and investment choices households make in their life: the purchase of a house. When borrowing and lending rates differ from each other and from the implicit rate of interest paid by real estate, the structure of those rates influences the decision to buy a house, and its impact depends on household characteristics and, in particular, on the slope of their resources profile over time. The empirical analysis is based on the Bank of Italy's Survey on Household Income and Wealth and exploits regional heterogeneity in financial market conditions to assess their effect on household tenure in a single country setting. The results show strong evidence that the interest rate spread interacts with the time path of resources and alters the desired age profile of housing tenure by discouraging or postponing the dwelling purchase by households with steeper resource profiles.