Estimating the weight of opportunity costs in housing consumption
In this paper I estimate the weight of opportunity costs in probably the largest economic decision that households make: buying a house. I show that homeowners attach approximately twice as much weight to out-of-pocket costs of their housing consumption than to the opportunity costs associated with this.
- Housing consumption lends itself well for empirically analyzing opportunity costs.
- I split up the user costs of housing in out-of-pocket and opportunity costs.
- Homeowners weigh in their opportunity costs at only 50 to 65 percent.
- It is unclear whether homeowners underestimate these costs or simply care less about them.