Local agglomeration and household mortgage debt

Abstract

Using detailed household data, we find that households working in locally agglomerated economies have higher levels of mortgage debt and are more likely to have mortgage debt. Further analyses document that local agglomeration reduces laborers’ unemployment risk and increases their promotion probability and wealth. Meanwhile, households with high unemployment risk, low probability of promotion, and low wealth are more likely to get mortgages if they are in more agglomerated economies. These results suggest that the link between local agglomeration and mortgage debt is best explained by the career prospects view. That is, agglomerated economies increase laborers’ career potential. Our results hold under instrumental variables analysis and a set of robustness checks. Overall, our findings highlight the importance of local labor market composition in household mortgage debt.