Flutterby™! : Home ownership and unemployment 2013-05-08 16:47:54.529265+00

Home ownership and unemployment

2013-05-08 16:47:54.529265+00 by Dan Lyke 4 comments

DC Streetsblog: There Goes the Neighborhood: Why Homeownership Drags Down Employment looks at Does High Home-Ownership Impair the Labor Market?, David G. Blanchflower and Andrew J. Oswald (PDF):

We explore the hypothesis that high home-ownership damages the labor market. Our results are relevant to, and may be worrying for, a range of policymakers and researchers. We find that rises in the home-ownership rate in a US state are a precursor to eventual sharp rises in unemployment in that state. The elasticity exceeds unity: A doubling of the rate of home-ownership in a US state is followed in the long-run by more than a doubling of the later unemployment rate. What mechanism might explain this? We show that rises in home-ownership lead to three problems: (i) lower levels of labor mobility, (ii) greater commuting times, and (iii) fewer new businesses. Our argument is not that owners themselves are disproportionately unemployed. The evidence suggests, instead, that the housing market can produce negative ‘externalities’ upon the labor market. The time lags are long. That gradualness may explain why these important patterns are so little-known.

Of course, you may not be able to move to a new house in another part of the country if your mortgage is underwater, or that you have to take a huge tax hit in selling your old house, and the resulting cash isn't enough to buy a new house of the same value.

Just the transaction costs involved in transferring title to a house can dramatically slow down homeowner mobility.

But I think what's really interesting is this observation that it isn't the homeowners who are under-employed. I need to give the paper a close reading all the way through, but I think there are fascinating tie-ins to ideas about why kids move away from home, whether renters tend to have extra money for service-oriented jobs (ie: good restaurants in cities, and, famously, the hypothesis that Berkeley is such a food mecca because rent control leaves renters with a lot of disposable income), things like that.