Home ownership: the downside

I’ve always thought that there were strong positive externalities in home ownership. As John Hewson got into trouble for saying all those years ago, which houses and neighbourhoods will be better looked after those where people have a strong pecuniary stake or those where they don’t. (We’re generalising here remember, it’s not true for everyone.) Mortgage payments on home ownership are also a good discipline for raising savings rates and giving people an asset for retirement.

Anyway, here’s a paper by some great economists which raises some strong downsides.

Does High Home-Ownership Impair the Labor Market?
by David G. Blanchflower, Andrew J. Oswald – #19079 (LS ME)

Abstract:

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 policy-makers and researchers. We find that rises in the home- ownership rate in a U.S. 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 U.S. 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.

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SJ
SJ
8 years ago

It’s rubbish. The period was cherry-picked (1950-2000), and it was funded by Pete Peterson. And the authors claim that current unemployment rates in Spain support their hypothesis – hello, GFC? Reverse causality?

derrida derider
derrida derider
8 years ago

Yep, its an old paper which led nowhere. In a nutshell rates of labour market mobilty are so low among most workers in most countries, with or without home ownership, that the further barrier to mobilty represented by home ownership does not have much of a detectable effect on labour market aggregates. I don’t have time to dig up the later papers, but they’re there if you go looking for them.

Its one of a large class of effects where there’s nothing wrong with the posited theory (and hence is certainly worth some empiric follow up) but the relevant elasticities turn out in the end to be too small to matter much.