OWNER-OCCUPIED HOUSING AS A PORTFOLIO CHOICE

The problem investigated in the dissertation is whether or not owner-occupied housing serves as a distinguishable asset choice. A distinguishable asset choice is one where the holdings of the asset are influenced by changes in the relative rate of return. The thesis hypothesis is that the holding of owner-occupied housing in the households' portfolio is sensitive to changes in the relative rates of return among assets.;This study uses yearly United States' data from 1948 to 1979 for four portfolio items (owner-occupied housing, liquid assets, equities, and debt) of the household sector of the economy. A stock adjustment portfolio model is used to ascertain the influence of the market interest rate and the rate of return to owner-occupied housing on the holding of owner-occupied housing. This model also shows the interrelationship of the holding of owner-occupied housing with other portfolio assets.;The conclusion reached is that the holding of owner-occupied housing is responsive to changes in the lagged rate return on owner-occupied housing {r(,HO)(-1)} and the market interest rate (r(,B)). A change in r(,HO)(-1) exerted a significantly positive influence on the change in owner-occupied housing. For example, a one hundred basis point change in r(,HO)(-1) would have approximately a five billion dollar change on owner-occupied housing. Our study also confirmed that changes r(,B) had a negative influence on the holding of owner-occupied housing. From the results of estimating the thesis model, it was our conclusion that the hypothesis that changes in relative asset rates of return influence the holding of owner-occupied housing could not be rejected.;It was also found that changes in r(,HO)(-1) exerted a negative.;The alternative hypothesis is that households hold the same physical quantity of housing regardless of the changes in the relative rate of return. The household, in this case, would primarily be concerned with the consumption choice for housing services rather than with the rate of return on owner-occupied housing when purchasing the housing unit.('1).;influence on the holding of liquid assets and equities. This finding.;reinforces the conclusion that the return to owner-occupied housing.;is an important element in households' portfolio decisions.;('1)The rate of return to owner-occupied housing is defined as being.;the imputed income to the housing unit plus capital gains or losses.;and this sum divided by the value of the housing unit.