Discussion Papers on Economics,
University of Southern Denmark, Department of Economics

Abstract: Highly productive economies require a flexible labor force with workers that move in accordance with the changing demand for goods and services. In times with falling housing prices, home owning workers’ mobility may be hampered by a lock-in effect from low and negative equity. This paper explores the effect of housing equity on homeowners’ residential mobility and their commuting pattern. We merge administrative registers for the Danish population and properties and get highly reliable micro data for our analysis. We compare the lock-in of homeowners with high LTV ratios under a booming economy with the lock-in when the economy is in recession. Low and negative equity reduces residential mobility, with similar relative effects in boom and slump periods. The negative impact on labor market flexibility from low equity lock-in is stronger when the economy is in recession and housing prices are falling. We show that this is mitigated by a comparatively high propensity to commute for locked-in homeowners when the labor market tightens.

Keywords: Mobility; Commuting; LTV ratio; Home equitiy; Mortgage lock-in

JEL-codes: G21; J61; R23; R51

30 pages, December 15, 2015

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