TESTING THE CENTRAL PREDICTION OF HOUSING TENURE TRANSITION MODELS

Housing tenure choice is usually assumed to depend on relative tenure specific user costs, controlling for the household's lifetime income. These models assume perfect capital markets. However, there is substantial evidence that potential first-time homebuyers face significant borrowing constraints. This paper proposes a tenure choice model, based on tenure transition theory principles, that recognizes the existence of both exogenous and endogenous liquidity constraints. It predicts that tenure choice depends centrally on a household's liquefiable wealth, controlling for the asset price of housing. This prediction is tested using household survey data from both the United States and Canada. (C) 1995 Academic Press, Inc.