The motivation of Romanian young adults to access mortgage loans

Background
According to Eurostat data, 96.1% of Romanians were living in dwellings they
owned in 2014, this being the highest homeownership rate in the European
Union. Only 3.9% of Romanias population were tenants, way below the
29.9% average in the EU. A 2007 paper attributed the extraordinarily high
home ownership levels to two forces: relatively large rural populations, who
typically either built their own homes or inherited them; and the rapid
privatization of public rental housing in the 1990s following the collapse of
state socialism. The process of our transition from a command to a market
economy has largely shaped the housing situation in our country. Housing in
the east was previously viewed as an entitlement for all, provided by the
state. In a western market economy housing seems now to be largely treated
as a commodity to be bought and sold. In Romania, too, houses have
become goods.
Although the rate of homeownership across Europe is strongly correlated
with the share of homeowners without a mortgage or a housing loan European countries with higher rates of homeownership also have greater
shares of homeowners without a housing loan or a mortgage, there is no
denying the fact that mortgage loans have gained momentum in Romania
over the past decade, the volume of these credits in the Romanian currency
exploding over the past year and reaching levels 80% higher than those of
2008 when crediting was at its peak before the economic crisis hit. The First
home credits advanced by 40%, but the standard mortgage credits
increased tenfold, according to Romanian National Bank statistics. This trend
is expected to continue, with 90% of banks expecting an increase in demand
for housing loans.
An interesting question that arises from these trends is learning what the
motivation is behind peoples decision to access these types of credits.
Admittedly, there are economic rationalities for choosing to buy rather than
rent in Romania, a study done by Banca Romneasc S.A. and Imobiliare.ro
suggesting that in the capital, the monthly loan payment for an apartment or
flat aquired with the First home loan is 20% lower than the average rent
demanded for a similar dwelling. Moreover, there are several positive
outcomes associated with homeownership - it increases residential stability,
it appears to be correlated with higher school attainment (Aaronson 1999), it
enhances civic pride and improves voter turnout (Rohe, McCarthy and Van
Zandt 2002, Dietz and Haurin 2003) and contributes to better societal
outcomesless crime, a better familial environment, etc. (Haurin, Parcel and
Haurin 2002). Although the homeowners coming from low-income background
do not experience a significant increase in self-esteem or sense of control,

they do, however, experience a significant increase in life satisfaction (Rohe,

Stegman 1994)
Still, homeownership does not come without its drawbacks, being correlated
to significant increases in the unemployment rates, as well as longer
commute times, which suggests that high home-ownership may gradually
interfere with the efficient functioning of a labour market (Blanchflower,
Oswald). Homeowners are less mobile than renters due to higher transaction
costs and perhaps because of greater ties to their neighbourhood and
community (Dietz, Haurin 2003).
Research question
In the context of an increasing globalized world, I wanted to know what the
underlying motivations of young adults from Romania are, in particular when
they decide to take on this type of financial commitment, instead of going for
other less constricting options. The literature is surprisingly sparse regarding
this type of approach to the issue, with duration of use being one of the main
driver that has been analysed. When the duration is short, renting is
preferred, while buying is preferred for longer durations, even when the
economic consequences of both choices are exactly the same (Haurin and
Gill, 2002; Moore and Taylor, 2009). Preferences towards a particular way of
living are also a key driver of the decision regarding the place chosen to live,
with three latent lifestyle segments emerging: suburban dwellers, urban
dwellers, and transit-riders (Walker, Li 2006). Still, there is more to be looked
into, particularly regarding societal norms and pressures, the effects of the
increasing rates of emigration and the slow moving economy and how all of
these, combined with other factors that are in the shadow, play a role in
young adults decision to become homeowners.
Research design

Because the initial approach to the research question is going to be an

exploratory one in this stage, the proposed research method is the in-depth
interview, due to the amount and nature of the information that can be
obtained by using it. The issue is complex and multifaceted, which requires a
qualitative approach in order to get a sense of the underlying factors that
play a role, while also being highly personal and therefore not as fit for other
methods such as focus groups.
The targeted sample that I envisage for this study is young adults that are
potentially eligible for mortgage loans under the current legislative
conditions: men and women, aged between 23-35 y.o. and fully employed.
Medium-to-large urban dwellers will be targeted, hopefully covering a wide
range of geographical areas in Romania (ideally, there will be a few
respondents from each major Romanian city - Bucharest, Cluj-Napoca,
Timisoara, Iasi, as well as Constanta, Sibiu and Brasov.) In order to get a
rounded image of how and why these people make the sort of housing

decisions that they make, people from the main three living arrangement
possibilities will be recruited: homeowners (that accessed a mortgage loan),
tenants (that pay a monthly fee for their housing) and freeloaders (whose
living arrangements does not require them to make any financial sacrifice).
Also, for an extra layer of analysis, there should be a variety in relationship
status, ideally having both respondents that are single or in committed
relationships.
The recruitment of the interviewees will start with the interviewers own
network of acquaintances, using a snowballing method to find respondents
who are relatively accessible to, but do not have any meaningful relationship
with the interviewer himself/herself. The data will be collected through the
use of recordings and note-taking, and I expect that the interviews will be
carried out across Romania, in locations that are convenient for the
interviewees, but also provide a private and comforting environment.
Results
The end result of the research will be a report that will summarize the
findings, as well as provide insight and connections between the responses
of the interviewees, hopefully providing enough information to support a
future quantitative research and will be more expansive in scope.
Incentives
Due to limited resources, incentives for participation will have to be kept to a
minimum and will most likely entail the sharing of the research findings with
the respondents, at the end of the analysis. Still, social norms have been
proven to be just as effective motivators for people to do things for others as
financial incentives, which will be a strategy that, if applied effectively, could
prove very useful.
REFERENCES:
Aaronson D. (2000), A Note on the Benefits of Homeownership, Journal of
Urban Economics, 47, 356-369
Dietz R.D. & Haurin R. (2003), The social and private micro-level
consequences of homeownership, Journal of Urban Economics, 54,401450
Edgar B. & Filipovic M. (2007), Home Ownership and Marginalisation,
European Journal of Homelessness, 1
Haurin R. & Gill H. L. (2002), The Impact of Transaction Costs and the
Expected Length of Stay on Homeownership, Journal of Urban Economics, 51,
563-584

Moore A. & Taylor M. (2009), Why buy when you can rent? A brief
investigation of differences in acquisition mode based on duration, Applied
Economics Letters,16, 12111213
Rohe W. M. & Stegman M. A. (1994), The Effects of Homeownership on the
Self-Esteem, Perceived Control and Life Satisfaction of Low-Income People,
Journal ofthe American Planning Association, Vol. 60, No. 2
Walker J. L. & Li J.(2007), Latent lifestyle preferences and household location
decisions, Journal of Geographical Systems, 9, 77101

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