High home ownership linked to high unemployment
London, November 1, 2013
High levels of home ownership are strongly linked to subsequent rises in unemployment because labour mobility becomes reduced, according to new research.
Using data going back to 1950 across all U.S. states except Alaska and Hawaii, Warwick University economics professor Andrew Oswald finds that the lag from ownership levels to unemployment rates can take up to five years to show up.
But he said the linkage, established using data on millions of randomly sampled Americans, was extraordinarily robust.
Doubling home ownership in a state can lead to more than a doubling of the jobless rate.
"I have become convinced that by boosting home ownership we have ruined our labour market," Oswald said.
He conducted his research with David Blanchflower, a professor of economics at Dartmouth College, New Hampshire, who used to be a member of the Bank of England's Monetary Policy Committee.
Oswald said the research may go some way to explaining why Spain, with a home ownership rate of 80 percent, has unemployment above 25 percent, whereas Switzerland, with a 30 percent ownership rate, has a jobless rate of just 3 percent.
Germany, another nation of renters rather than home owners, also has relatively low unemployment.
Studies carried out independently by a Finnish researcher produced similar findings for the Nordic nation, Oswald said.
Home ownership unwittingly impairs the labour market by deterring people from moving in search of work, a process that is time-consuming and expensive; long commuting times might also discourage a householder from taking a particular job, his research suggests.
Another theory is that home owners are opposed to new businesses opening up in their neighbourhoods - a phenomenon known in Britain as NIMBY, or Not In My Back Yard.
"This suggests that, without politicians being aware of it, high home ownership may slowly erode a country's industrial base," Oswald wrote in a paper for Warwick University and Chatham House, a London think tank.
He said his statistical correlations should be deeply worrying for politicians in those countries that have promoted home ownership through tax breaks and subsidised mortgages.
Britain is due to expand one such home-loan scheme, called Help to Buy, at the start of next year.
"In Britain we have incredibly cheap mortgages and we're giving help-to-buy inducements on top of that in a world where house prices are already rising far above the rate of inflation that the Bank of England says it wants. It's unbelievably illogical," Oswald told Reuters. – Reuters
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