Negative equity and wages

• We test whether underwater homeowners earn lower wages.
• Identification relies on time-location fixed effects, a synthetic mortgage IV strategy and first differences.
• Homeowners with negative equity earn 3–7% less than homeowners with positive equity.
• Otherwise less-mobile households do not earn less.

We examine the relationship between housing equity and wage earnings using nine waves of the national American Housing Survey from 1985 to 2003. Employing a rich set of time and place controls, a synthetic mortgage instrumental variable strategy, and a first difference estimator we find that people underwater on their mortgage command a significantly lower wage than other homeowners. The finding survives a number of robustness checks for reverse causality and unobserved heterogeneity. We also explore other determinants of “house lock” including loss aversion, a low existing mortgage interest rate and property tax assessment caps, but do not find these factors mitigate the effect of negative equity on wages.