Housing Formation and Unemployment Rates: Evidence from 1975-2011

Posted: 10 Apr 2015

See all articles by Jung Hyun Choi

Jung Hyun Choi

The Urban Institute

Gary Painter

University of Southern California - Sol Price School of Public Policy

Date Written: April 8, 2015

Abstract

This paper investigates the impact of shocks in the unemployment rate on household formation. Prior research has shown that negative economic shocks reduce household formation, but does not inform how long the declines in household formation will persist. Using time series data from 1975 to 2011, we examine how households respond to unemployment rate shocks and estimate the length of time it takes for households to return to its original level in a vector autoregressive model. The results demonstrate that household formation falls in the quarter after unemployment increases, and that it can take up to 10 quarters to return its previous level. While this is a substantial length of time, one implication of these results is that even a permanent increase in the unemployment rate will not permanently affect housing formation in the long run.

Keywords: Housing formation; Housing demand; Unemployment; Vector Autoregressive (VAR)

Suggested Citation

Choi, Jung Hyun and Painter, Gary, Housing Formation and Unemployment Rates: Evidence from 1975-2011 (April 8, 2015). Journal of Real Estate Finance and Economics, Vol. 50, No. 4, 2015, Available at SSRN: https://ssrn.com/abstract=2591917

Jung Hyun Choi

The Urban Institute ( email )

2100 M Street, NW
Washington, DC 20037
United States

Gary Painter (Contact Author)

University of Southern California - Sol Price School of Public Policy ( email )

Los Angeles, CA 90089-0626
United States
213-740-8754 (Phone)
213-740-0001 (Fax)

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