Speaker: Marlene Koch, Maastricht University
Title: Optimal portfolio choice under the presence of shared ownership schemes
Abstract: In this paper, we study government-subsidized shared ownership schemes in the UK that facilitate financially-constrained individuals’ housing market entry by allowing them to buy a share of the property they live in and pay rent for the share they do not own. Moreover, the shared ownership structure can be time-varying, i.e., individuals can adjust the share of the property they own. Using a rich and realistically calibrated life cycle model, we study the impact of access to such shared ownership schemes on individuals’ optimal consumption, savings, and housing decisions. We find that access to shared homeownership is most attractive to young, liquidity-constrained individuals who enter the housing market by buying small fractions of their property and old individuals who are in the process of decumulating their savings and are selling fractions of their property as they get older. Further, it leads to earlier housing market entry, later housing market exit, decreases individuals’ loan-to-value ratios, and reduces their moving activity at old age; all in comparison to a setting in which the individuals’ rent-versus-own decisions are binary.