Environmental and Security Risk Factors behind Mortgage Arrears in Israel

Abstract

If a mortgage borrower misses three or more payments, the loan moves into the mortgage arrears (MA) category. This study examines MA events in Israel from 2010 to 2016, focusing on the effect of several environmental and security risk factors, including air pollution, proximity to the Lebanon-Syria and Gaza Strip borders, and location outside the 1949 Armistice border (Green Line). The analysis reveals statistically significant associations between MA incidence and most of the environmental variables analyzed. We conjecture that these associations reflect the fact that prolonged exposure to air pollution may elevate morbidity and weaken the ability of borrowers to make regular loan repayments. In addition, security risks may limit the attractiveness of high-risk areas to developers and investors, thus restricting employment opportunities locally available. Air pollution and security risks may also decrease the asset value by lowering housing demand due to out-migration of more affluent residents. The present analysis is a pioneer individual level study that investigates the effect of air pollution and proximity to conflict zones on MA incidence.

Keywords:

• Air-pollution; Israel; mortgage arrears; security risks

Notes

1 Depending on specific measurement equipment installed, air quality monitoring stations measure different combinations of air pollutants. In particular, there were 129 stations recording all five pollutants, and 11 stations recording NO_x, PM_2.5, and PM₁₀ only.

2 The list of recent armed conflicts and incidents originating from these areas include (in addition to intermittent clashes and security incidents): the 2^nd Lebanon War (July-August 2006); the operation “Cast Lead” in Gaza (December 2008-January 2009); the operation “Pillar of Cloud” (November, 2012); and the operation “Protective Edge” (July-September 2014).