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This paper studies to what extent labor market institutions can explain homeownership rate differences over time and across countries. Using panel data from 19 OECD countries over the period 1965-2014, I find empirical evidence that employment rigidities are positively correlated with homeownership, whereas real wage rigidities are negatively correlated with homeownership. The empirical findings are rationalised through a DSGE model with labor rigidities, and search and matching frictions, where heterogeneous households face a housing tenure decision. Labor market frictions affect housing tenure choice through their impact on employment and wage volatility. The housing market is directly linked to labor rigidities via an endogenous credit constraint. Performing counter-factual analyses, I find that labor market institutions account for a relevant share of the difference in homeownership between countries and over time. I also show that labor reforms which reduce unemployment benefits can dampen the effect of policies targeted to increase homeownership.
