Description
Abstract: In many countries, the cost of housing has greatly outpaced income growth, leading to an affordability crisis. Leveraging Canadian loan-level data, we document an increasing reliance of first-time home-buyers on financial help from their parents through mortgage co-signing. We show that parental support can effectively relax the borrowing constraints of their adult children, and allow them to enter the housing market early. However, we also identify a novel channel through which parental support could increase borrower vulnerabilities. Co-signing incentivizes adult children to lever up and purchase housing beyond what they can afford, exposing them to a greater risk of financial stress.