Housing in the macroeconomy: Wealth distribution, business cycles and portfolio choice

A considerable amount of research has aimed at replicating observed features of the US wealth distribution using dynamic general equilibrium models. Housing investment and the consumption of housing services have been largely absent from this literature. Given the magnitude and the idiosyncratic aspects of housing in the US economy, this is a significant omission. For instance, residential structures account for half of the capital stock. In this dissertation I develop a life-cycle model with housing and study the quantitative implications for the distribution of housing and financial portfolios investigating also the implications for the concentration of wealth and economic fluctuations.; In the first chapter, I analyze both the level of housing investment and the housing tenure choice in a dynamic equilibrium framework. The model features a rental market for housing services, uninsurable shocks to earnings, a social security scheme and age-dependent efficiency profiles. The model is consistent with the life-cycle pattern of homeownership rates, the level of Gini coefficients for non-housing wealth and the declining concentration of housing wealth over the life cycle. However, the model does not capture the life-cycle pattern of the housing-to-net-worth ratio.; In the second chapter, I add aggregate uncertainty to a life-cycle model similar to the one in the first chapter. I find that the model does a remarkable job in matching the life-cycle pattern of the housing-to-wealth ratio. In addition, the model is consistent with the fact that the housing-to-wealth ratio is smaller in booms than in recessions. Most of the difference between booms and recessions is concentrated in the younger age groups. Regarding economic fluctuations, the model matches the stylized business cycle facts such as relative volatilities and correlations of consumption, employment and investment with output.; The final chapter investigates the implications for life insurance holdings of life-cycle economies with housing. As noted by other authors, in reasonably parameterized models, agents demand life insurance too early in their lives in comparison to what is observed in the data. This paper analyzes whether housing investment early in agents' lives can account for this anomaly.