Consumption and Investment Motives in Housing Wealth Accumulation of Spanish Households

The dual motives of housing behavior, consumption and investment make the analysis of housing purchases quite difficult. As a matter of fact, while a larger literature, theoretical and empirical, deals with housing tenure choice by modeling housing consumption demand, few studies have tried to analyze housing demand simultaneously with demand for other assets according to the portfolio choice theory. Fewer still have tried to consider simultaneously the two-dimensional aspect of housing, consumption and investment. Henderson and Ioannides [16] have built a model that is one of the first attempts to consider the two-dimensional aspect of housing. In the absence of institutional considerations, this model predicts that it is the difference between the investment demand for housing and the consumption demand that explains decisions to purchase dwellings for owner occupation and for renting out. We have tested the model on the Spanish Survey of Household Finances (EFF) conducted in 2002 by the Bank of Spain. Results show that even if the effect of some of the explanatory variables are consistent with those predicted by the model, the difference between the two demands is not statistically significant and it cannot in itself explain housing purchases. It seems that housing purchase is more a question of portfolio choices than of consumption of durable goods. Interestingly, we observe that Spanish households behave in a different way than French (Arrondel and Lefebvre [3]) and US (Ioannides and Rosenthal [20]) households: for them, the difference between the two demands for housing explains behavior and consumption motives dominate primary residence purchase. These results lead us to conclude that there is a “Spanish case” that is completely different and need to be analyzed in details