Mortgage market, housing tenure choice and unemployment
Year of publication: 2015
Keywords: search and matching frictions; mortgage market; housing costs; housing tenure choice; search intensity; unemployment
JEL Classification: G21, J64, R21, R31
Following the evidence that housing costs may impair the proper functioning of the labour market, this paper develops a search and matching model where trading frictions in the mortgage and labour markets interact with each other. Precisely, the employment status affects the probability to get a mortgage. In turn, the granting or not of the mortgage affects the housing tenure choice (tenancy or owner occupancy). Finally, the housing tenure choice affects the unemployment rate. It will show that tenants generate a greater effort in searching for a job since employed workers have a greater chance of getting a mortgage. As a result, the positive correlation between the homeownership and unemployment rates emerges as quite consistent with the evidence that homeowners tend to be unemployed less often than tenants.