Housing Markets, Liquidity Constraints and Labor Mobility

Bank of Finland Discussion Papers 8/2000

29 Pages Posted: 12 Jun 2002

See all articles by Markus Haavio

Markus Haavio

Bank of Finland - Research

Heikki Kauppi

University of Turku - Department of Economics; Bank of Finland - Research; University of Helsinki - Department of Political and Economic Studies

Date Written: June 30, 2000

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: labor mobility, liquidity constraints, owner-occupation, rental housing

Suggested Citation

Haavio, Markus and Kauppi, Heikki, Housing Markets, Liquidity Constraints and Labor Mobility (June 30, 2000). Bank of Finland Discussion Papers 8/2000, Available at SSRN: https://ssrn.com/abstract=313341 or http://dx.doi.org/10.2139/ssrn.313341

Markus Haavio

Bank of Finland - Research ( email )

P.O. Box 160
FIN-00101 Helsinki
Finland

Heikki Kauppi (Contact Author)

University of Turku - Department of Economics ( email )

20014 Turku
Finland

Bank of Finland - Research ( email )

P.O. Box 160
FIN-00101 Helsinki
Finland

University of Helsinki - Department of Political and Economic Studies

P.O. Box 54
FIN-00014 Helsinki
Finland

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