Banco De Espana Research Paper

Does Limited Access to Mortgage Debt Explain Why Young Adults Live with Their Parents?

52 PagesPosted: 23 Oct 2006  

Date Written: October 20, 2006


Young adults leave their parents' home at a higher rate in Northern Europe and the United States than in Southern Europe, with broad implications on labor mobility, intergenerational sharing of resources and on fertility. This paper assesses if differences in household structure can be traced back to restricted access to credit for the young. To study the causal impact of getting a loan on the probability of leaving the nest, we exploit two reforms of a Portuguese program that subsidized interest rate on mortgages signed by low- and medium-income young adults. Using a unique dataset that merges a Labor Force Survey with administrative debt records, we estimate that getting a mortgage loan increases the rate of leaving home by between 31 and 54 percentage points. We combine those estimates with an European household panel to document that if our preferred estimates held for all countries, differential use of credit markets would explain between 16% and 20% of the North-South differences in home leaving.

Keywords: Living arrangements, Family Structure, Credit Markets

JEL Classification: D91, J12, H53

Suggested Citation:Suggested Citation

Martins, Nuno C. and Villanueva, Ernesto, Does Limited Access to Mortgage Debt Explain Why Young Adults Live with Their Parents? (October 20, 2006). Banco de Espana Research Paper No. WP-0628. Available at SSRN: or

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This paper investigates the welfare and economic stabilization properties of a fiscal transfers scheme between members of a monetary union subject to sovereign spread shocks. The scheme, which consists of cross-country transfer rules triggered when sovereign spreads widen, is incorporated in a two-country model with financial frictions. In particular, banks hold government bonds in their portfolios, being exposed to sovereign risk. When this increases, a drop bank’s equity value forces them to contract credit and to raise lending rates at the same time as they retain funds to build up their net worth. I show that, when domestic fiscal policy is not distortionary, fiscal transfers improve welfare and macroeconomic stability. This is because fiscal transfers can reduce banks’ exposure to government debt, freeing credit supply to the private sector. On the contrary, when domestic fiscal policy is distortionary, fiscal transfers cause welfare losses, despite stabilizing the economy. This result arises because the distortions caused by funding the scheme outweigh the positive effects of fiscal transfers in smoothing the adjustment of the economy hit by the shock.


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