PhD Defence: To Own, To Finance, and To Insure - Residential Real Estate Revealed


The PhD dissertation <link doctoral-programme phd-in-management phd-projects detail>To Own, To Finance, and To Insure - Residential Real Estate Revealed by Ruben Cox provides important insights into the social and financial consequences of homeownership.

The first part of his study indicates that there is a small positive effect of homeownership on neighbourhood safety and satisfaction indicators in the Netherlands. However, the effects diminish once homeownership rates reach higher levels. This means that subsidising homeownership (e.g. mortgage interest deductibility) specifically for these motives is costly and likely yields limited returns.

The dissertation also provides input for governmental policies with respect to the governance of mortgage lenders and financial intermediaries. Ruben demonstrates that there is limited evidence of damaging sales by financial intermediaries of financial products in the Dutch market, as there is a relatively small impact of their involvement on the outcomes of the mortgage underwriting process. Cox argues that corporations can protect and enhance their reputational capital by assuring that sales of financial products only go through when the recipients demonstrably understand the products they are acquiring.

Furthermore, the study shows that provision-based incentives align the interests of the financial intermediary with those of the lender, but these are not necessarily consistent with the customers’ interests. Since there is limited evidence for irresponsible selling by intermediaries, it is debatable to what extent a ban on provisions will solve a misalignment problem. This can have important implications with respect to the distribution system of financial products and the supervision thereof.

Finally, the study provides particular insights for insurance companies by documenting who their customers are, but even more importantly who currently are not and why. These insights can help insurers to devise marketing strategies to target this group, thereby further diversifying their risk pool.

Ruben Cox's dissertation was defended on Thursday, 12 September. His supervisor was Dirk Brounen, Professor of Real Estate Economics at Tilburg University (previously working at Erasmus University) and co-supervisor was <link people peter-neuteboom>Dr. Peter Neuteboom, Associate Professor at Erasmus University. Other members of the Doctoral Committee were <link people mathijs-van-dijk>Mathijs van Dijk, Professor of Finance and <link people dion-bongaerts>Dr. Dion Bongaerts, both of Erasmus University and Kees Koedijk, Professor of Financial Management at Tilburg University.

About Ruben Cox

Ruben Cox (Netherlands, 1985) received his HAVO diploma (Science & Technology-track) in 2003 from the Bonnefanten College in Maastricht. He holds a Bachelor in Industrial Engineering (2007, cum laude) from Zuyd University of Applied Sciences in Heerlen and a Master in Business Administration, specialisation Finance and Investments (2009, cum laude) from RSM. During his Masters he worked as a financial analyst at the Rotterdam Port Authority. Starting his PhD in Finance in September 2009 with the Erasmus Research Institute of Management (ERIM), his research position is sponsored by the National Mortgage Guarantee (NHG). During his PhD, Cox attended academic summer courses at the Barcelona Graduate School of Economics and spent four months at the National University of Singapore as a visiting PhD candidate. His work has been presented at a number of international conferences including the AREUEA annual meetings in Atlanta (2010) and Chicago (2012), AREUEA mid-year meeting in Washington DC (2011), AREUEA international meetings in Rotterdam (2010), Jeju, South-Korea (2011) and Singapore (2012), the ARES annual meetings in Seattle (2011) and St. Petersburg, FL (2012), the ERES annual meetings in Milan (2010) and Edinburgh (2012) as well as smaller scale conferences including the ZEW ReCapNet meetings in Mannheim (2010 and 2011), the CESifo conference on Housing Taxation and Regulation in Munich (2010) the BHPS ‘Understanding Society’ conference in Colchester (2011) and the European Retail Investment Conference in Stuttgart (2013). The paper of chapter two has been accepted for publication at Urban Studies and the paper of chapter five was awarded the Doctoral Student Best Paper Award at the ERIC (2013) conference. Ruben has taught classes on both the bachelor (Corporate Finance) and master level (Research Skills and Real Estate Finance and Investments) and supervised Bachelor and Master theses.  He is currently with the Dutch Authority of Financial Markets (AFM) as a Supervision Officer in the Security Offerings and Public Bids division.

Abstract of To Own, To Finance, and To Insure - Residential Real Estate Revealed

This dissertation contains four studies that contribute to our understanding of the social and financial consequences of homeownership. The first study examines the effects of homeownership on residential satisfaction and neighbourhood safety. Cox shows that neighbourhoods with higher homeownership rates are safer and that residents are more satisfied with their neighbourhood. In the second study, he provides insight into the decision making process that households undergo when arranging mortgage financing. Specifically, he documents that those households who are either less risk averse or more financially literate are more likely to opt for alternative mortgage products such as interest-only mortgages. The third chapter focuses on the mortgage origination process and investigates whether provision-based compensation of financial intermediaries affects underwriting outcomes for households. The results indicate that this, contrary to popular belief, is not the case when mortgage lenders are exposed to default and reputational risks, thereby providing them with an incentive to screen mortgage applications and monitor brokers. The final study investigates the demand for mortgage insurance. Households with recourse mortgage debt face wealth risks in case they are forced to sell their house following an adverse income shock. The findings in this study support the hypothesis that households eligible for insurance who are overconfident are significantly less likely to obtain mortgage insurance.

Photos: Chris Gorzeman / Capital Images