[This paper analyzes U.S. time-series data in order to study the determinants of the choice between renting and homeownership. Special attention is focused upon changes in the relative prices of owning and renting induced by provisions of the federal personal income tax. The results suggest that about one-quarter of the growth in the proportion of homeowners in the post-World War II period is a consequence of the tax system's favorable treatment of owner-occupied housing.]

This paper analyzes U.S. time-series data in order to study the determinants of the choice between renting and homeownership. Special attention is focused upon changes in the relative prices of owning and renting induced by provisions of the federal personal income tax. The results suggest that about one-quarter of the growth in the proportion of homeowners in the post-World War II period is a consequence of the tax system's favorable treatment of owner-occupied housing.

Dwight M. Jaffee, Kenneth T. Rosen, Estimates of the Effectiveness of Stabilization Policies for the Mortgage and Housing Markets, The Journal of Finance, Vol. 33, No. 3, Papers and Proceedings of the Thirty-Sixth Annual Meeting American Finance Association, New York City December 28-30, 1977 (Jun., 1978), pp. 933-946

Modern empirical work on the choice between renting and owning focuses on the concept of the of housing, which integrates into a single measure the various components of housing costs. The standard approach implicitly assumes that households know the user cost of housing with certainty. However, the ex post user cost measure exhibits substantial variability over time, and it is highly unlikely that individuals believe themselves able to forecast these fluctuations with certainty. In this paper, we construct and estimate a model of the tenure choice that explicitly allows for the effects of uncertainty. The results suggest that previous work which ignored uncertainty may have overstated the effects of the income tax system upon the tenure choice.