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Journal Article
Passing Along Housing Wealth from Parents to Children
Young adults are more likely to own a home if their parents are homeowners than if their parents are renters. New research reveals how parents owning a home can lead to an increase in the persistence in homeownership across generations. Specifically, homeowner parents are often able to extract the equity value from their home to help their children purchase a home. This “dynastic” home equity enables children of homeowner parents who extract equity to accumulate approximately one third more housing wealth by age 30 than children of renters.
Working Paper
Dynastic Home Equity
Using a nationally-representative panel of consumer credit records for the US from 1999 to 2021, we document a positive correlation between child and parent homeownership. We propose a new causal mechanism behind this relationship: parents extract home equity to help finance their child’s home purchase. To identify the mechanism, we use fixed effect, event study, local projection and matching methods. We find that children whose parents extract equity: (i) are 60-80% more likely to become homeowners; (ii) have lower leverage at origination; and (iii) buy higher-valued homes and at a younger ...