We investigate the optimal dynamic consumption, housing and portfolio decisions for an investor who receives stochastic labor income and acquires housing services from either renting or owning a house. We find that the investor prefers owning to renting to take advantage of lower owning cost when not liquidity?constrained. More important, when indi®erent between owning and renting, the homeowner holds a higher equity proportion in his liquid financial portfolio (bond and stock), yet a lower equity proportion in his total financial wealth (stock, bond and home equity) than the renter. Further, having the opportunity to own a house tilts a renter’s portfolio towards safe asset, while being able to rent housing services induces a homeowner to increase his stock holding. Denying investors access to either the house owning or rental market can lead to large welfare costs. Empirical evidence from the 1998 Survey of Consumer Finance data is broadly consistent with our theoretical predictions.