How credit markets affect homeownership: an explanation based on differences between Italian regions

This paper deals with the importance of liquidity constraints in shaping one of the main consumption and investment choices house- holds make in their life: the purchase of a house. When borrowing and lending rates dier from each other and from the implicit rate of interest paid by real estate, the structure of those rates in uences the decision to buy a house, and its impact depends on household charac- teristics and, in particular, on the slope of their resources prole over time. The empirical analysis is based on the Bank of Italy's Survey on Household Income and Wealth and exploits regional heterogeneity in nancial market conditions to assess their eect on household tenure in a single country setting. The results show strong evidence that the interest rate spread interacts with the time path of resources and alters the desired age prole of housing tenure by discouraging or postponing the dwelling purchase by households with steeper resource proles.