The unemployment rate and household formation in Spain

Abstract

Household formation does not follow a similar pattern in all European countries since it depends mainly on specific structural factors, such as the socioeconomic conditions to access property and the legal and institutional frameworks that control the housing market in each country. For this reason, this paper studies the effects of a negative shock in household formation in Spain and its duration during the 1995–2017 period. We use a vector autoregressive (VAR) model with different endogenous and exogenous variables that, according to the literature, may have an impact on household formation. The results show that the negative impact on household formation is not immediate but takes about a year to generate results. Also, the rise in unemployment due to the economic crisis explains almost a third of household formation variance, which is strengthened by the impact of housing prices. Finally, there is no virtual development in household formation before a change in housing stock in the short term. This result means that public policies aimed to strengthen housing and, particularly, the emancipation of young people must improve opportunities and labor market conditions to allow young people access to the real estate market.