Housing and careers over the life cycle

Households’ labour-market and housing choices interact in important ways. On the one hand, stable jobs and high wages early on in life facilitate the build-up of financial savings in order to fulfil the down payment requirement for buying a home. A stable career may also reduce the need for precautionary savings and shift the households’ portfolio allocation towards illiquid housing wealth. On the other hand, homeowners are less mobile than renters, which limits their ability to accept jobs farther away. In turn, homeowners tend to search more locally, which has consequences for job finding and earnings dynamics. Furthermore, homeowners with mortgage liabilities may prefer more stable jobs and hence face a different risk-return trade-off in the labour market. Next to these interactions at the household level and their role for income and wealth inequality, housing and career choices of households have consequences for the aggregate economy. Moreover, aggregate employment, capital and output respond to the choices of firms (e.g., productive firms may or may not locate in areas with high ownership) and market prices (e.g., house prices and rents depend on labour market conditions). 

The objective of this research project is to understand and analyse the two-way interaction between housing and career choices over the life cycle and their aggregate and distributional consequences. The particular novelty of the project is that it will build on rich data and careful modelling of the job search choices of workers on and off the job, alongside portfolio choices at the household level. Doing so, we will be able to understand not only how labour market status (i.e., employment versus unemployment) relates to workers’ housing tenure, but more broadly to examine how job search, job acceptance and quitting on and off the job are shaped by and contribute to housing decisions. Understanding and quantifying these micro-level relationships will allow us to analyse the consequences of housing policies, such as first-time homebuyer allowances, for the labour market and for the aggregate economy. Vice versa, we can analyse how labour market policies (unemployment insurance or labour taxes) have spillovers on households’ housing choices and wealth accumulation. Finally, we aim to understand how cross-country differences in homeownership relate to cross-country differences in labour market outcomes.