On the negative relationship between labor income uncertainty and homeownership: Risk-aversion vs. credit constraints

In this paper, we test for the first time whether the driving force behind the negative impact of labor income uncertainty on owner-occupancy propensities is risk-aversion or credit constraints. To disentangle this puzzle, we estimate reduced form equations using Italian data. Our results concerning the effect of credit constraints and income uncertainty are consistent with previous empirical evidence in the US, and confirm that in Italy both variables exert a significant negative effect on the probability of homeownership. However, our main findings indicate that the negative relationship between labor income uncertainty and homeownership is driven by households' risk-aversion. (c) 2005 Elsevier Inc. All rights reserved.