Does High Cost of Mortgage Debt Explain Why Young Adults Live with Their Parents?
Young 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.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 7 (2009)
Issue (Month): 5 (09)
|Contact details of provider:|| Web page: http://www.mitpressjournals.org/jeea|
|Order Information:||Web: http://www.mitpressjournals.org/jeea|
When requesting a correction, please mention this item's handle: RePEc:tpr:jeurec:v:7:y:2009:i:5:p:974-1010. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Anna Pollock-Nelson)
If references are entirely missing, you can add them using this form.