Unemployment Insurance as a Housing Market Stabilizer

Comparison of foreclosures avoided between 2008 and 2013

Key Findings:

    • Job loss significantly increases the risk of mortgage default, and temporary income replacement through unemployment insurance mitigates this effect.
    • Expansions of unemployment insurance between 2008 and 2013 prevented substantially more foreclosures than the contemporaneous HAMP (Agarwal et al., 2015) and HARP (Agarwal et al., 2016) housing programs.


This paper studies the impact of unemployment insurance (UI) on the housing market. Exploiting heterogeneity in UI generosity across U.S. states and over time, we find that UI helps the unemployed avoid mortgage default. We estimate that UI expansions during the Great Recession prevented more than 1.3 million foreclosures and insulated home values from labor market shocks. The results suggest that policies that make mortgages more affordable can reduce foreclosures even when borrowers are severely underwater. An optimal UI policy during housing downturns would weigh, among other benefits and costs, the deadweight losses avoided from preventing mortgage defaults.


Hsu, Joanne W., David A. Matsa and Brian T. Melzer, 2016, Unemployment Insurance as a Housing Market Stabilizer, Working paper, conditionally accepted at the American Economic Review.

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