Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/148131
Authors: 
Ho, Anson T. Y.
Zhou, Jie
Year of Publication: 
2016
Series/Report no.: 
Bank of Canada Staff Working Paper 2016-24
Abstract: 
Assets in tax-deferred retirement accounts (TDA) and housing are two major components of household portfolios. In this paper, we develop a life-cycle model to examine the interaction between households' use of TDA and their housing decisions. The model generates life-cycle patterns of home ownership and the composition of net worth that are broadly consistent with the data from the Survey of Consumer Finances. We find that TDA promotes home ownership, as households take advantage of the preferential tax treatments for both TDA and home ownership. They substitute TDA assets for home equity by accumulating wealth in TDA and making smaller down payments (taking out bigger mortgages); consequently, they become homeowners earlier in their lives. On the other hand, housing-related policies, such as a minimum down payment requirement and mortgage interest deductibility, affect households' housing decisions more than their use of TDA.
Subjects: 
Economic models
Housing
JEL: 
C61
D14
D91
E21
H24
R21
Document Type: 
Working Paper

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