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Kathrin Schlafmann

University of Munich, Germany

Author: Kathrin Schlafmann

Abstract: This paper analyzes how costs of self control affect the housing and mortgage decision of households. Empirically, households with signs of poor self control tend to own smaller houses and have a higher loan-to-value ratio. To analyze the mechanism behind this observation I build a structural life-cycle model which explicitly models costs of self control in household preferences. In the calibrated model costs of self control have economically significant effects on the housing and mortgage choice. Moreover, welfare consequences of financial regulation depend on a household's self control. I analyze the consequences of two policies: an increase in the minimum down payment requirement and the introduction of mortgage refinancing. The results reveal that whether people benefit from these policies or not depends on their costs of self control. Agents with non-zero costs of self control benefit from a substantial minimum down payment requirement. If costs of self control are high people are worse off if refinancing is possible since they can no longer use the house as a commitment device.

JEL Codes: D91, E21

Keywords: Life-Cycle, Mortgage, Housing

Full Text:  “Housing, Mortgages, and Self Control”