High home ownership can seriously damage your labour market, new study shows

May 07, 2013

(Phys.org) —Government policies that boost the amount of home ownership in a country are likely to inflict severe damage on the labour market, new research from the University of Warwick suggests.

Professor Andrew Oswald from the University of Warwick and Professor David ("Danny") Blanchflower from Dartmouth College examine a century of unemployment and home-ownership data for the states of the USA from 1900 to 2010. Combining those numbers with modern data on millions of randomly sampled Americans, the researchers show there is a powerful link between the and the later health of the economy.

Rises in home-ownership in a US state are followed by substantial increases in the unemployment rate in the state, a fall in the mobility of its workers, a rise in commuting times, and a drop in the rate of new business formation. The authors are careful to check, and they replicate, their findings for different periods of US history. The release of their work coincides with a new European study, done independently, which draws the same conclusions. That research, by Jani-Petri Laamanen at the University of Tampere, follows the effects of housing deregulation across the regions of Finland.

Professor Oswald said: "We have been collecting data for decades now and it is appropriate to go public on the results. We find that a high rate of home-ownership slowly decimates the labour market. The USA makes a valuable 'laboratory' in which to study this issue, because the different states have a language, currency, and culture in common."

The Warwick research is agnostic about some of the underlying mechanisms, but the authors believe that high home ownership in an area leads to people staying put and commuting further and further to jobs, thereby creating cost and congestion for firms and other workers; to NIMBY (not in my back yard) activities where home owners block new businesses; and to an ossification of the mobility and dynamism of an economy. The authors' argument is not that an owner is disproportionately likely to lose his or her job.

The authors believe their ideas apply equally well to Europe. Countries like Spain and Greece famously have high home-ownership (80%+) and high unemployment (20%+), while nations like Switzerland, Germany and Austria are notably low on both.

"The UK urgently needs a high-quality private rental market like the Swiss and Germans. That would hugely improve the flexibility of our economy, reduce UK unemployment, and produce a lot of extra happiness all round.", Oswald said.

The study found, for example, that the states that had the highest change in home ownership (an average of +23 % in Alabama, Georgia, Mississippi, South Carolina and West Virginia) since 1950 had a rise in the unemployment rate of 6.3 percentage points between 1950 and 2010.

By contrast, the five states that had the lowest increase in home ownership over the period 1950-2000 (an average of +1 per cent in California, North Dakota, Oregon, Washington and Wisconsin) saw a rise in unemployment of 3.5 percentage points over the 60 years from 1950-2010.

These numbers should be seen against the background of the unusually high national unemployment rate in 2010.

South Carolina, for example, saw a rise in home ownership of 27 percentage points, the single biggest rise of all the states. It also had the single biggest rise in unemployment of 8 percentage points.

The second largest rise in home ownership was in Mississippi of 25 percentage points. Unemployment rose 7 percentage points in the state.

Close to the lowest rise in home ownership was in North Dakota, which saw +0.4 per cent. The of North Dakota was unchanged.

California saw a home ownership rise of 3 percentage points and an unemployment rise of 4 percentage points.

The paper is titled "Does high home-ownership impair the ."

Explore further: Rural loss and ruin can be avoided

More information: www.andrewoswald.com/

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User comments : 11

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gopher65
3 / 5 (2) May 07, 2013
While this obviously is only one of many factors that have an effect on the labour market, this does make sense. Just the decrease in worker mobility alone would hurt the labour market significantly, as shown in past studies.
antialias_physorg
3 / 5 (4) May 07, 2013
Businesses could (and should) react to this with more telecommuting/virtual presence jobs. There's a plethora of jobs that don't actually require physical presence for most of the time.

Infrastructure (high speed trains and good inner city transfer) could mitigate the development also by increasing the radius in which a worker is willing to look for a job.

(On a slightly absurd note: Housing markets could also react to this by offering more in terms of container homes. There's a couple of stunningly attractive homes built based on shipping containers which could be easily moved to a new location).

Increase in wealth and/or decrease in interest rates will increase home ownership. Unless one institutes measures to artificially keep large parts of a population poor that's just how it will go
Guy_Underbridge
4.8 / 5 (4) May 07, 2013
Wanted: Migratory workers, recent hunter-gatherer experience preferred.
tekram
5 / 5 (1) May 07, 2013
Excel spreadsheet error :)
More likely that the govt is unable to control boom bust economic cycle.
voidstar
1.5 / 5 (2) May 07, 2013
> urgently needs a high-quality private rental market like

That's not remedy. Expecting UK market in reference to be one with the sharp ownership rise.

The new owners did not appear out of nowhere.

Those who moved out of rental property into own capped the future spending of those providing the property for rent.

Those splitting households dropped their's share of operating and upkeep expenses of the original property. Thus capping the other spending of those left in the now split household.

And finally those moving into new own property are capped for years to come.

So where is the money? Clogged in the income expense pipe of people who are trying to put a plug on it. Before all the money leaks since the market oportunity has mostly evaporated.
VendicarE
4 / 5 (4) May 07, 2013
Perhaps this is why American Capitalists are doing their best to make homeless as many Americans as possible.
kochevnik
1 / 5 (2) May 07, 2013
This has nothing to do with homes. That, on the face of it, is blatantly stupid. It is the zionist bankster cartel artificially inflating home values with their fiat funny money and the subsequent implosion of the bubble that sends shock ripples through the greater economy
alfie_null
5 / 5 (3) May 08, 2013
Is this one of those correlation ≠ causation problems? They are seeing the effects of sprawl, not simply home ownership.
and produce a lot of extra happiness all round

I'm not convinced that renting would make me happier than owning. And if it were only a question of having high quality rentals being available, wouldn't supply and demand have addressed the lack thereof?
antialias_physorg
5 / 5 (2) May 08, 2013
They are seeing the effects of sprawl, not simply home ownership.

What they are contrasting is that renting confers more mobility
It's psychologically easier to rent another appartment than sell one and buy another.
You usually are more invested in making an owned appartment better fit for your tastes than one you rent (major remodelling is something you also don't do in a rented appartment)

It's also a lot harder to find an equivalent appartment when you have already invested a lot of time (and money) in getting it exactly the way you want.

Not to mention that people who raise families are more likely to want to stay where they are so that kids don't have to change school, etc. (and therefore are more likely to look to buy rather than rent in the first place)

Their arguments seems sensible to me.
kochevnik
5 / 5 (1) May 10, 2013
Correlational argument for USA downward mobility as the economic assets are sold for scrap as with libertarian loans-for-shares program sponsored by 90s Harvard economists liquidated wealth of CCCR to plutocrats
arq
not rated yet May 12, 2013
Only one of many factors.