Finance and Economics Discussion Series (FEDS)
September 2025
Illiquid Homeownership and the Bank of Mom and Dad
Abstract:
Housing is the largest asset in U.S. household portfolios, and first-time homebuyers increasingly rely on parental transfers. This paper quantifies the contribution of parental transfers to the homeownership rate of young households. I build and estimate a life-cycle overlapping generations model with housing, where adult children and parents interact without commitment. I find that parental transfers account for 13 percentage points (27%) of young households' homeownership. Transfers from wealthy parents not only help households overcome borrowing constraints, but also help sustain homeownership, mitigating the drawbacks of illiquidity. Surprisingly, policies lowering entry barriers to homeownership generally increase the reliance on parental wealth, whereas increased liquidity reduces it. Finally, I show that children of wealthy parents strategically use the illiquidity of housing as a commitment device to encourage transfers, resulting in a preference for illiquidity.
Keywords: Homeownership, Parental transfers, Altruism, Life-cycle models
DOI: https://doi.org/10.17016/FEDS.2025.094
PDF: Full Paper
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