Housing Habits and Their Implications for Life-cycle Consumption and Investment

Holger Kraft, Claus Munk, Sebastian Wagner

Research output: Contribution to journalJournal articleResearchpeer-review


We solve a rich life-cycle model of household decisions involving consumption of perishable goods and housing services, habit formation for housing consumption, stochastic labor income, stochastic house prices, home renting and owning, stock investments, and portfolio constraints. In line with empirical observations, the optimal decisions involve (i) stock investments that are low or zero for many young agents and then gradually increasing over life, (ii) an age- and wealth-dependent housing expenditure share, (iii) non-housing consumption being significantly more sensitive to wealth and income shocks than housing consumption, and (iv) non-housing consumption being hump-shaped over life.
Original languageEnglish
JournalReview of Finance
Issue number5
Pages (from-to)1737-1762
Number of pages26
Publication statusPublished - Aug 2018

Bibliographical note

Published online: 13. October 2017


  • Household decisions
  • Stock investments
  • Housing expenditure share
  • Consumption hump
  • Habit formation

Cite this