Search Frictions, Housing Prices and Growth

Rising house prices have a positive impact on real gross domestic product (GDP) through the consumption effect and the construction of new houses (housing investment). Basically, the strength of this positive effect relies on a large share of homeowners (especially regarding the consumption effect). At the same time, however, a greater share of homeowners could encourage unemployment (the so-called Oswald hypothesis), thus damaging economic growth. This theoretical article includes the link among housing tenure, job-search, and labor market outcomes in the relation between housing prices and growth. The main finding of this work is that homeownership may either reinforce or resize the effect of housing prices on economic growth. Empirical support is also provided for this theoretical finding.