Research Discussion Papers, Bank of Finland
No 8/2000:
Housing Markets, Liquidity Constraints and Labour Mobility
Markus Haavio ()
and Heikki Kauppi ()
Abstract: Recent European data indicate that countries where a large
proportion of the population lives in owner-occupied housing are
experiencing higher unemployment rates than countries where the majority of
people live in private rental housing, which might suggest that rental
housing enhances labor mobility. In this paper, we develop a simple
intertemporal two-region model that allows us to compare owner-occupied
housing markets to rental markets and to analyze how these alternative
arrangements allocate people in space and time. Consistent with the
empirical observations, we find that the interregional labor market is more
fluid under rental housing than under owner-occupation. As a result of
greater mobility, the rental arrangement also results in better
allocational efficiency than owner-occupation. When dwellings are rented,
the decision to move to a booming region is largely based on current
productivity, whereas under owner-occupation random wealth effects
encourage deviations from this optimal behavior.
Keywords: labour mobility; liquidity constraints; owner-occupation; rental housing; (follow links to similar papers)
29 pages, June 30, 2000
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