As part of the series of the „Finance Research Seminar“, VGSF welcomes Matteo Benetton from Berkeley Haas School of Business, University of California to present his research paper.
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Paper
Dynastic Home Equity
Using a nationally representative panel of consumer credit records for the US from 1999 to 2021, we document a positive correlation between child and parent homeownership. We propose a new causal mechanism behind this relationship: parents extract home equity to help finance their child’s home purchase. We identify the mechanism combining fixed effects, event study, local projection and matching methods. We find that children whose parents extract equity: (i) are significantly more likely to become homeowners; (ii) have lower leverage at origination; and (iii) buy higher-valued homes and at a younger age. The effects are stronger when housing affordability is worse and children’s financial constraints are more likely to bind. Dynastic home equity alone can explain 5% of the racial housing gap for young adults, showing that pre-existing disparities in access to home equity hand down from one generation to another.
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