Essays in Housing Choices and Consumer Behavior

Racial differences in the consumption of particular characteristics of houses have largely been neglected in literature. Given homeownership, minorities and whites consume different housing attributes and live in different housing conditions. In Chapter One "The Consumption of Housing Space: Why African-Americans Live in Smaller Units," I analyze the determinants of housing space demand and decompose the black-white difference in the consumption of housing space into three categories: the endowment effect, behavioral effect, and selectivity effect. Using the 2007 American Housing Survey national data, I identify the demand functions for housing space for both African American households and white households. Next, the Blinder-Oaxaca decomposition is used to analyze the black-white gap in housing space consumption. A correction for possible sample selection is included in the model to capture the differences in the housing space consumption between homeowners and non-homeowners. The results show that after controlling for family income and household structure there is still a large portion of the housing space gap that cannot be explained. Income has the largest impact on space consumption among the observed endowments. Racial differences in income account for 24% of the housing space gap. The unexplained portion of the gap is 61%. Forty percent of the unexplained gap is due to differences in the selection processes by which blacks and whites become homeowners. The second chapter "Housing Space Consumption in the 2000s: Aggregate Trends and Racial Gaps between African-Americans and Whites" extends the study on racial differences in the housing space consumption to a longer time period (1997-2009). I analyze this pattern using national data from the 1997 to 2009 American Housing Survey. Results indicate the unexplained portion of the gap varies from 40% to 75% during this period, and is negatively correlated with the tightening in the mortgage standards. This result suggests that credit barriers may prevent African American households from purchasing their desired size homes. The third chapter "The Impact of Borrowing Constraints on the Homeownership of Chinese Households" addresses the effect of borrowing constraints in the mortgage market on the tenure choice of Chinese households. The termination of housing allocation system in 1994 is one of the most important reforms in Chinese economy during past decades. Millions of Chinese households became homeowners after this housing reform, and a market-based housing system was established. Since then, Chinese housing mortgage market has boomed and by 2005 China had become the largest residential mortgage market in Asia. This chapter examines the effect of borrowing constraints in mortgage market on the tenure choice of Chinese households. The result shows that few Chinese households are constrained by the down payment criterion. With limited lending sources and a relatively high housing price-to-income ratio, they are more likely to be constrained by the income criterion. Empirical work indicates that a one thousand dollar increase in the family's permanent income increases the likelihood of owning a housing unit by 11.8%. Moreover, highly income-constrained households are 8.6% less likely to become homeowners.

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