Abstract

Why do workers stay in places in economic decline? This paper presents a housing wealth channel where declining housing wealth reduces the out-migration incentives of homeowners following a negative regional shock. I combine Norwegian administrative data with a life-cycle model that includes location, housing, and savings decisions. I exploit the 2014–2016 oil price plunge episode which reduced regional earnings and home prices significantly and permanently in the oil-exporting region of Stavanger and I empirically document the heterogeneous changes in moving behavior across housing tenures and wealth. While the overall out-migration rate in 2015–2018 increased modestly by 0.37%, renter and low housing-wealth homeowner migration rose by 41% while higher housing-wealth homeowner migration fell by −26%. The richness of the data allows me to control for potentially confounding factors such as net worth. The model shows that, following a regional earnings shock, the erosion of housing wealth reduces homeowners’ out-migration motives by lowering the value of other locations. The effect increases with housing wealth, consistent with the data. Without the home price reduction, out-migration rises by 29%, and with it, only 2.6%. These results highlight the importance of general equilibrium effects to understand the heterogeneity in migration responses, that the most affected homeowners are not compensated by the GE effect which is what depresses migration. Policies like moving subsidies benefit mobile renters and can amplify the housing wealth effect on less mobile homeowners, further reducing the out-migration incentive.