Housing Returns over the Income Distribution

Abstract: We show that high-income buyers earn higher financial returns to housing using detailed transaction data from Denmark. The gap in housing returns is explained by location, with little role for market timing, property type, buyer characteristics, or risk-taking. Higher-income households purchase in areas with persistently higher house price growth but comparable risk, liquidity, and downside exposure to those chosen by lower-income households. Credit constraints and consumption needs limit the feasible choice set of lower-income households, limiting access to high-return locations. Our results highlight how spatial sorting amplifies differences in wealth accumulation: returns on the largest household asset are shaped less by risk or investment skill than by consumption needs, housing supply, and financial constraints.