Économie et Statistique n° 417-418 - Household Assets: Recent Developments
Labour Supply and First-Time Home Purchases: the Impact of Borrowing Constraints on Female Activity in France
For nearly thirty years now, French housing policy has been seeking to promote home ownership. After a fairly robust rise until the early 1990s, first-time home-buying stalled for about ten years. Eighty-five percent of buyers take out loans, but households must meet two requirements in order to qualify: they need to provide a down payment and their loan cannot exceed 30% of income. By using fluctuations in real-estate prices and interest rates as sources of exogenous variation of debt, we can determine whether a household raises its labour supply when its income gearing (ratio of loan repayments to income) nears the ceiling set by credit institutions. The data for a sample of couples in the 2004 Household Assets Survey show that, up 25% of income, household income gearing does not influence female economic-activity behaviour. But when repayments cross that threshold, the female partner is 14% more likely to work. This non-linear causal relationship between income gearing and female activity can be explained by credit requirements. The combination of a weaker labour market and credit requirements can therefore inhibit first-time home-buying. In France, these constraints are as powerful as those observed in other countries such as Canada and the United Kingdom.