Wage and Homeownership (Chapter 9)

This chapter delves into the relationship between homeownership and wage. As shown in Chapter 5, wage plays a key role in the decision to buy a home, since a constant and high enough income flow is necessary to obtain a mortgage from the bank. Until now, however, the wage was assumed to be endogenous in the labour market, and exogenous in the housing market, namely, wage was not affected by housing market conditions. In this chapter, instead, the tenant/worker’s surplus in the housing market (namely, the opportunity of becoming a homeowner) is considered in the wage equation. It follows that wage will depend on trading frictions in both the labour market and the housing market. Accordingly, housing market frictions will also affect labour market outcomes (job creation and unemployment).