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 - - - Intertemporal Household 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:
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- 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).
- Effrosyni Adamopoulou & Ezgi Kaya, 2013. "Young adults living with their parents and the influence of peers," Economics Working Papers we1310, Universidad Carlos III, Departamento de Economía.
- Mohammad Reza Farzanegan & Hassan Gholipour Fereidouni, 2014. "Marriage Crisis and Housing Costs: Empirical Evidence from Provinces of Iran," MAGKS Papers on Economics 201401, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
- 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.
- 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.
- Viola Angelini & Anne Laferrère, 2013. "Parental altruism and nest leaving in Europe: evidence from a retrospective survey," Review of Economics of the Household, Springer, vol. 11(3), pages 393-420, September.
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