We construct a model of optimal life‐cycle housing and nonhousing consumption and
estimate the elasticity between the two goods to be 0.487. The estimate is robust to different
assumptions of housing adjustment cost, but sensitive to the choice of sample period and
the degree of aggregation of data moments. We then conduct experiments in which house
prices and household income fluctuate. Compared with the benchmark, the impact of the
shocks on homeownership rates is reduced, but the impact on nonhousing consumption is …

We estimate a structural model of optimal life-cycle housing and consumption in the
presence of labor income and house price uncertainties. The model postulates constant
elasticity of substitution between housing service and nonhousing consumption, and
explicitly incorporates a house adjustment cost. Our estimation fits the cross-sectional and
time-series household wealth and housing profiles from the Panel Study of Income
Dynamics well, and suggests an intra-temporal elasticity of substitution between housing …