House Price Beliefs and Household Labor Supply

Abstract

I identify the effect of house price beliefs on household labor supply decisions. Using experienced price growth (a weighted average of past price growth in local housing markets) as the belief measure, I find that higher house price beliefs significantly increase household labor supply at both the extensive (labor income) and the intensive (hours worked) work margin. Results hold when using geographically distant relatives’ experienced price growth as an instrument. Effects are stronger among less sophisticated households, and there is no significant difference between the working propensity of homeowners and renters, thus distinguishing the belief channel from home equity channels.