Does High Cost of Mortgage Debt Explain Why Young Adults Live with Their Parents?
AbstractYoung adults leave their parents' homes at a higher rate in Northern Europe or in the United States than in Southern Europe, with broad implications on labor market mobility and on fertility. We assess if differences in household formation are associated to differences in access to credit by estimating the impact of the cost of a mortgage on the probability that a young adult leaves his or her parents' home. Exogenous changes in the cost of credit are identified using the reform in 1998 and the cancellation in 2002 of Crédito Bonificado, a Portuguese program that provided four different reductions of the interest rate of mortgages signed by low- and medium-income youth. Using a unique data set that links administrative records of debt with the 1998-2004 waves of the Employment Survey, we document three findings. First, borrowing among young adults fell when borrowing costs increased. Second, the elasticity of new household formation with respect to net interest rates lies between - 0.8 and - 3.3. Third, young adults responded to the increase in mortgage costs by delaying home purchases or by reducing the quality of housing services purchased, but there was only a modest increase of the probability of renting a new accommodation. (JEL: D91, H24, J13) (c) 2009 by the European Economic Association.
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Bibliographic InfoArticle provided by MIT Press in its journal Journal of the European Economic Association.
Volume (Year): 7 (2009)
Issue (Month): 5 (09)
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Web page: http://www.mitpressjournals.org/jeea
Find related papers by JEL classification:
- D91 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Consumer Choice; Life Cycle Models and Saving
- H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
- J13 - Labor and Demographic Economics - - Demographic Economics - - - Fertility; Family Planning; Child Care; Children; Youth
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Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- La emancipación con recortes rápidos y reformas a medio gas
by Florentino Felgueroso in Nada Es Gratis on 2012-07-26 23:56:04
- Aparicio Fenoll, Ainhoa & Oppedisano, Veruska, 2012. "Fostering the Emancipation of Young People: Evidence from a Spanish Rental Subsidy," IZA Discussion Papers 6651, Institute for the Study of Labor (IZA).
- Emma Tominey, 2010. "The Timing of Parental Income and Child Outcomes: The Role of Permanent and Transitory Shocks," CEE Discussion Papers 0120, Centre for the Economics of Education, LSE.
- Emma Tominey, 2010. "The Timing of Parental Income and Child Outcomes: The Role of Permanent and Transitory Shocks," Discussion Papers 10/21, Department of Economics, University of York.
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