Local Agglomeration and Household Mortgage Debt

Fengqin Freya Chen (), Walid Saffar () and Longfei Shang ()
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Fengqin Freya Chen: Institute of Accounting and Finance, Shanghai University of Finance and Economics, Shanghai 200433, China
Walid Saffar: School of Accounting and Finance, The Hong Kong Polytechnic University, Hong Kong
Longfei Shang: School of Finance & Institute of Chinese Financial Studies, Southwestern University of Finance and Economics, Chengdu, Sichuan 611130, People’s Republic of China

Management Science, 2025, vol. 71, issue 6, 5001-5021

Abstract: Using detailed household data, we find that households working in locally agglomerated economies have high mortgage loans and are more likely to have mortgage loans. Channel testing shows that local agglomeration increases housing and mortgage demand as well as mortgage supply. The increase in mortgage loans is driven by purchases of larger houses and smaller down payments. Mechanism analyses document that local agglomeration affects mortgage loans by increasing career upward potential and providing downside protection. Specifically, we find that the impact of local agglomeration is stronger for skilled employees with enhanced prospects. In addition, local agglomeration weakens the negative relation between unemployment and mortgage loans, which supports the downside-protection role of local agglomeration. These results hold under instrumental variables analysis, difference-in-difference analysis, and a set of robustness checks. Overall, our findings highlight the importance of local labor market composition in household mortgage debt.

Keywords: local agglomeration; mortgage debt; labor market composition (search for similar items in EconPapers)
Date: 2025
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